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Author: 

Fisk 


J 


Harvey  Edward 


Title: 


English  public  finance 

from  the  revolution  of. 

Place: 

New  York 

Date: 

1920 


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MASTER    NEGATIVE   # 


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Fisk,  Harvey  Edward,  1856- 

English  public  finance  from  the  revolution  of  1688,  with 
chapters  on  the  Bank  of  England,  by  Harvey  E.  Fisk.  New 
York,  Bankers  trust  company,  1920. 

3  p.  1.,  241  p.    18«. 

On  cover :  Bankers  trust  company  publications. 
"Authorities" :  p.  228-230. 


1.  Finance— Gt.  Brit— Hist    2.  Bank  of  England.    3.  Debts,  Public— 
Gt.  Bdt.        I.  Bankers  trust  company,  New  York.   u.  Title. 


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English  Public  Finance 

From  the  Revolution  of  1688 


. .     With  Chapters  on 
The  Bank  of  England 


1 


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Harvey  E.  Fisk 


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"  States,  like  individuals,  who  observe  their 
engagements  are   respected   and  trusted." 

Alexander  Hamilton. 

» 

THIS  book  IS  intended  to  give  in  form  for  ready  reference 
the  sahent  facts  in  regard  to  the  finances  of  the  United 
Kingdom. 
(^  The  earlier  chapters  tell  the  financial  story  of  the  critical 

t  period  of  the  war  from  the  fateful  August  4,  1914,  when  war 
was  declared,  to  the  budget  speech  of  Chancellor  Chamber- 
lain on  April  19,  1920,  which  so  ably  dealt  with  the  financial 
\  problems  of  the  reconstruction  period.     The  later  chapters 

discuss  the  revenue,  expenditure  and  debt  prior  to  1914  and 
England's  methods  of  financing  from  the  time  of  William  the 
I  Conqueror.     Present  day  financial  methods  are  traced  back 

to  their  origins  in  these  early  days. 
t  The  activities  of  the  Bank  of  England  are  so  closely  inter- 

woven with  the  operations  of  the  English  Treasury  that  to 
apprehend  clearly  Great  Britain's  public  finance  one  should 
have  knowledge  of  the  history,  the  functions  and  the  opera- 
tions of  the  Bank,  therefore  several  chapters  have  been  de- 
voted to  these  matters. 

Almost  without  exception  the  statements  of  fact  contained, 
in  this  book,  especially  those  having  to  do  with  its  main  pur- 
pose— public  finance — are  based  upon  a  study  of  official  docu- 
ments. Where  necessary  to  depend  upon  secondary  sources 
care  has  been  taken  to  refer  only  to  those  admittedly  author- 
itative. 

We  are  hopeful  that  this  book  may  contribute  to  a  better 
understanding  of  Great  Britain's  present  financial  problems 
and  how  they  are  being  solved,  and  that  it  may  prove  to  be  a 
useful  work  of  reference  for  our  friends. 

Bankers  Trust  Company. 
New  York,  June,  1920. 


1 


Contents 


ENGLISH  PUBLIC  FINANCE 


CHAPTER 

I    "1920'' 
II    "1914*' 

III  War  Costs  and  How  They  Were  Met 

IV  The  War  Debt 
V  How  the  Banks  Helped  Finance  the 

War 
VI  The  War  Credit  Structure 
VII  Crown  Finance 

VIII  Revenues  of  the  Anglo-Saxon  Kings 
IX  The  King's  Prerogative 
X  Crown    Revenues     Subsequent    to 

Norman   Period 
XI  Crown  Debts 

XII  Constitutional  Government  Devel- 
oped by  Control  of  the  Purse 
XIII  England  After  the  Revolution  of 

1688 
XIV  War  and  Debt 
XV  Early  Forms  of  Unfunded  Debt 
XVI  Early  Forms  of  Funded  Debt 
XVII  State  Lotteries  and  Lottery  Loans 
XVIII  The  Sinking  Funds 
XIX  Early  Refunding  Operations 
XX  Financing  the  Great  French  War 
XXI  Revenue  and  Expenditure 
XXII  Peace  and  Social  Betterment 

XXIII  The  Ancient  Exchequer 

XXIV  The  Modern  Fiscal  System 
XXV  Concluding  Thoughts  and  Deductions 


PAGE 

I 

4 

(1914-I920) 

13 

(1914-I920) 

23 

(1914-I920) 

39 

(1914-I920) 

45 

(1066-1688) 

54 

57 

(1066-1688) 

61 

(1154-1688) 

64 

(1216-1688) 

72 

(1066-1688) 

n 

(168  8-1920) 

86 

(1688-1817) 

91 

(l  688-1707) 

96 

(1688-1727) 

lOI 

(1694- I 8 26) 

108 

(1717-1920) 

116 

(1739-1817) 

121 

(1793-1817) 

124 

(1688-1817) 

136 

(1817-1914) 

141 

ISO 

154 

ms 

163 

THE  BANK  OF  ENGLAND 

CHAPTER 

I  A  Banking  Evolution 
II  The  Genesis  of  Banking 

III  The  Early  History  of  the  Bank 

IV  The  Bank  and  the  Great  French  War 
V  The  Joint-Stock  Banks 

VI  The  Bank  Charter  Act  of  1844 
VII  The  Government  of  the  Bank 
VIII  The  Scotch  and  Irish  Banks 

(The  Bank  in  the  Great  World  War.    For  part  taken 
see  Chapter  V,  page  39.  and  Chapter  VI.  page  45.) 


PAGE 

169 
172 
180 

191 
194 

2CX) 
206 


Tables 

National  Debt  Statement,  March  31,  1920 

Quotations:  Consols  and  Bank  of  England  Stock:  1697-1919 
British  Funds:  19 10- 19 19 

Money  Rates 

Treasury  Bills — Discount  Rates 

England's  Sovereigns 

Authorities 


208 
208 

218 
226 
226 
227 
228 


Index  and  Glossary 


231 


Note — ^All  money  statistics  are  in  sterling.  The  following  abbreviations  are  used 
in  stating  English  Currency  figures  £» pound;  s» shilling;  d« penny.  Thus  £1  ids 
7d— one  pound  sterling,  ten  shillings  and  seven  pence.  The  specie  equivalents  in 
American  money  are  £i«  14.86'/^;  sa-24V^  cents;  d» 2  cents. 

Statistical  statements  in  the  text  and  tables  as  a  rule  are  given  in  rounded  figures. 


English  Public  Finance 


Chapter  I 


tt 


1920 


>> 


THE  great  world  war  of  1914-1919,  officially  terminated 
by  the  acceptance  by  H.  M.  King  George  V,  on  July  31, 
19 1 9,  of  the  Peace  of  Versailles,  signed  June  28,  1919,  cost 
Great  Britain  over  £10,000  million  sterling.  If  we  add  to  this 
sum  the  war  expenditures  of  the  British  self-governing 
Dominions;  Canada,  £407  million;  Australia,  £379  million; 
New  Zealand  about  £76  million;  Union  of  South  Africa, 
£60  million  and  little  Newfoundland  about  £3  million; 
together  with  the  war  expenses  of  the  Crown  Colonies,  and 
India's  war  expenditure  of  £20  million  and  contribution  of 
£100  million,  we  arrive  at  a  grand  total  for  the  British 
Empire  of  over  £11,000  million.  This  was  an  expenditure 
made  necessary  by  the  war  in  excess  of  what  would  have 
been  the  expenditure  for  the  period  on  the  basis  of  the  pre- 
war budget. 

An  analysis  of  the  total  expenditure  of  the  United  King- 
dom from  1688  to  1920  discloses  the  amazing  fact  that  for 
the  six  fiscal  yearsy  beginning  March  31,  1914,  and  ending 
March  31,  1920,  the  expenditure  of  the  Government  actually 
exceeded  the  total  expenditure  for  thef  tzvo  and  a  quarter 

tin  making  this  comparison,  however  we  should  not  lose  sight  of  the  fact  that 
the  purchasing  power  of  the  £  sterling  has  fluctuated  greatly  during  this  period  and 
that,  frequently,  particularly  in  the  early  years,  a  given  sum  would  procure  much  more 
in  services  and  in  commodities  than  would  be  the  case  today.  This  fact  should  be 
borne  in  mind  all  through  these  pages  whereever  similar  money  comparisons  are  made. 

[I 


2] 


BANKERS  TRUST  COMPANY 


centuries  preceding  1914.    The  exact  figures  are,  for  the  226 
years   £10,944   million,  for  the  six  years  £11,268  million. 

The  people  of  Great  Britain  paid  into  the  coffers  of  the 
Government  in  taxes  and  other  revenue  collections  over 
36  per  cent,  of  this  vast  sum  of  more  than  eleven  thousand 
million  sterling.    The  other  64  per  cent,  was  borrowed. 

The  war  borrowings  of  Great  Britain  at  their  maximum, 
December  31, 1919,  amounted  at  par  value  of  securities  issued 
to  £7,368  million,  £6,011  million  furnished  by  her  own 
people,  £1,027  million  borrowed  in  and  from  the  United 
States  and  £330  million  borrowed  from  other  foreign  nations 
and  from  the  Dominions.  On  the  other  hand.  Great  Britain 
had  then  loaned  to  the  Dominions  £186  million  and  to  her 
allies  £1,666  million,  so  that  the  amount  loaned  abroad 
exceeded  by  £495  million  the  amount  borrowed  abroad. 

Thus  we  find  that  the  46  million  people  of  the  British 
Isles  raised  entirely  from  their  own  resources  a  net  amount 
of  £9,911  million,  over  £215  for  each  one  of  their  number. 

For  the  active  war  period  covering  the  five  fiscal  years  end- 
ing March  31,  IQ19,  from  22>^  per  cent,  to  34K  per  cent,  of 
the  expenditure  was  raised  from  taxation,  other  revenue 
collections,  and  war  contributions.  In  the  fiscal  year 
ended  March  31,  1920,  taxes  and  other  revenue  produced 
about  65  per  cent,  of  the  aggregate  budget  of  £1,662  million 
while  receipts  from  war  contributions,  sales  of  war  property 
and  income  from  trading  undertakings  j^ielded  about  16  per 
cent.,  leaving  less  than  20  per  cent,  to  be  provided  from  loans. 
Indications  now  are  that  in  the  current  fiscal  year  (1920- 
'21)  the  budget  will  balance  not  alone  without  any  addition 
to  the  debt  but,  if  the  present  plans  of  the  Government 
materialize,  with  a  substantial  surplus  for  the  reduction  of  debt. 
The  Dominions  have  made  an  equally  good  or  even  better 


ENGLISH  PUBLIC  FINANCE 


[3 


showing.  Canada  has  taxed  herself  for  nearly  fifty  per  cent 
(48.10)  of  her  total  war  time  expenditure;  Australia  raised 
40  per  cent,  from  taxation  and  New  Zealand  appears  to  have 
raised  57  per  cent,  from  taxation. 

The  national  wealth  of  Great  Britain,  or,  as  some 
economists  prefer  to  say,  the  national  capital,  at  the  beginning 
of  the  war  is  estimated  to  have  been  £14,500  million.  There 
has  probably  been  no  actual  addition  during  the  war.  On 
the  contrary,  doubtless,  there  has  been  some  depletion  therein. 
However,  measured  by  the  paper  pound  sterling  of  today 
we  may  quite  conservatively  take  £24,000  million  as  the 
figure  with  which  to  compare  the  £8,078  million  to  which 
the  debt  grew  from  the  pre-war  figure  of  £711  million;  giv- 
ing us  a  ratio  of  say,  33^  per  cent,  of  debt  to  wealth.  The 
debt  charge  for  interest  and  management  is  now  about  £360 
million,  comparing  with  £24  million  before  the  war.  The 
present-day  charge  is  about  ten  per  cent,  of  the  national 
income  estimated  to  be  £3,600  million. 

Having  in  mind  these  statistics,  so  vast  as  to  be  almost 
beyond  comprehension,  it  will  be  of  interest  to  know  the 
conditions  under  which  they  developed  and  the  means  used 
to  handle  the  problems  of  war  finance. 


ENGLISH  PUBLIC  FINANCE 


[5 


Chapter  II 


it 


1914 


>> 


TT  was  the  turn  of  the  business  year.  The  cloud  of  pessi- 
-■-  mism  which  had  overhung  the  international  finance 
markets  since  the  outbreak  of  the  Balkan  wars  in  191 2 
seemed  about  to  disappear. 

The  half-yearly  settlements  had  passed  over  smoothly  in 
the  chief  money  centers  of  Europe.  The  Bank  of  England 
and  all  the  great  central  banks  on  the  Continent  were  in 
strong  credit  condition.  Some  of  these  banks  had  accumu- 
lated reserves  beyond  anything  hitherto  known.  In  fact,  the 
accumulations  of  gold  were  becoming  so  great  as  to  indicate 
that  a  great  revival  in  trade  might  be  expected.  Deposits 
in  the  banks  of  the  United  Kingdom  were  heavier  than  at 
any  time  in  their  history,  amounting  to  about  £1,150  mil- 
lion, an  increase  in  the  fifteen  years  since  the  beginning  of  the 
Boer  War  of  over  £300  million. 

The  open  market  rate  of  discount  in  London  had  averaged 
in  the  previous  six  months  £2  los  per  cent.;  lower  than  for 
any  year  since  1908,  when  the  average  rate  for  the  year  was 
£2  5s  7d  per  cent.;  and  with  that  exception  lower  than  at 
any  period  since  1898.  This  condition  was  in  great  contrast  to 
that  which  had  characterized  the  money  markets  in  191 2  and 
1913  when  the  discount  rates  had  been  high — averaging  £3 
IIS  6d  per  cent,  in  the  former  year,  and  £4  6s  lod  per  cent, 
in  the  latter  year.  These  high  rates  in  large  part  had  been 
due  to  the  heavy  demands  made  upon  the  capital  of  the  world 
for  the  expenses  of  the  Balkan  wars  and  the  dislocation  of 
trade  through  Southern  Europe  because  of  these  wars  and  for 
the    subsequent    rehabilitation    of  the    war-torn    territorv 

4] 


Commodity  prices  in  these  years  had  been  high  and  invest- 
ment security  prices  low. 

With  1914  had  come  a  change  in  this  situation  and  events 
appeared  to  be  favoring  a  revival  in  the  securities  markets, 
with  less  active  commodities  markets.  England  had  enjoyed 
one  of  the  best  six  months  business  on  record  in  her  foreign 
trade,  even  though  it  had  been  conducted  on  a  somewhat 
lower  price  level  than  in  the  previous  year.  At  the  moment 
trade  was  quiet.  It  was  estimated  that  during  the  half  year 
England  had  invested  over  £100  million  abroad.  Her  total 
investments  abroad  were  estimated  to  be  not  less  than  £4,000 
million,  while  her  annual  income  from  these  investments,  from 
freights  paid  for  carrying  foreign  goods  in  British  ships  and 
from  banking  charges  was  estimated  at  £350  million. 

As  we  have  already  seen,  her  national  debt  was  only  £711 
million,  less  than  five  per  cent,  of  her  estimated  national 
wealth  of  £14,500  million. 

Therefore,  from  every  point  of  view,  England  in  July, 
1914,  was  in  a  strong  financial  condition.  Her  people  were 
prosperous.  The  welfare  of  even  the  humblest  classes  had 
been  made  the  subject  of  important  governmental  action, 
while  the  Chancellor  of  the  Exchequer,  David  Lloyd  George, 
had  given  notice  of  his  intention  to  bring  forward  a  great 
program  of  land  reform.  Relations  with  her  Overseas  Empire 
were  never  closer  or  more  cordial.  Earnest  efforts  were  being 
made  to  work  out  some  plan  for  representation  of  the  great 
Dominions  in  an  Imperial  Parliament  or  for  some  equivalent 
arrangement.  The  only  serious  political  situation  was  the 
perennial  one  of  Ireland,  where  preparations  for  armed 
resistance  by  the  Ulsterites  to  Mr.  Asquith's  proposed  Home 
Rule  plans  gave  the  Government  considerable  anxiety. 


61 


BANKERS  TRUST  COMPANY 


War  Breaks — Emergency  Measures 

On  the  23rd  of  July  came  the  news  of  Austria's  peremp- 
tory ultimatum  to  Serbia.    On  the  25th  Serbia's  reply  and  on 
the  28th  the  startling  advices  that  Austria-Hungary  had  de- 
clared war  on  Serbia.    Money  began  to  tighten ;  the  stock  mar- 
kets became  weak.   On  the  ist  of  August,  Germany  and  Russia 
were  at  war.    The  foreign  bourses  were  in  a  state  of  panic. 
London  and  New  York  were  the  only  important  open  mar- 
kets.   They  were  flooded  with  international  securities.     Be- 
tween July  20th  and  July  30th  Consols  fell  six  points,  India 
3>^s  four,  French  Rentes  five,  home  rails  from  fiVe  to  fifteen 
points.    American  rails  broke  heavily.    Canadian  Pacific  sold 
off  25>^  points.     South  Americans   dropped    from   four  to 
twenty-four  points.   Still  England  was  not  involved.   On  the 
following  day  the  Stock  Exchange  closed.    The  newspapers  of 
the  day  reported  that  "paralysis,  not  panic,"  was  the  word 
which  defined  conditions.    On  August  ist  France  ordered  a 
general  mobilization  following  a  peremptory  note  from  Ger- 
many on  July  31st  demanding  that  she  define  her  attitude 
within  twelve  hours.    On  this  same  day  German  troops  occu- 
pied Luxemburg  and  on  the  4th  Germany  had  started  her 
troops  across  Belgium.    At  11  p.  m.  of  the  4th  Great  Britain 
entered  the  lists  in  defense  of  Belgian  neutrality  in  accord- 
ance with  her  treaty  obligations. 

Fortunately  for  the  financial  world  these  events  were 
taking  place  at  the  time  of  the  London  Bank  Holiday  which 
extended  from  Saturday,  August  ist,  through  Monday  the 
3rd.  One  of  the  first  steps  taken  was  to  extend  the  holiday 
to  the  seventh.  This  gave  time  in  which  to  take  remedial 
measures.  On  July  31st  the  Bank  rate  had  been  raised  to 
8  per  cent.     On  the  following  day  it  was  raised  to  10  per  cent. 


ENGLISH  PUBLIC  FINANCE 


[7 


Naturally  on  the  eve  of  the  holiday  many  people  had  required 
money  for  their  week-end  payments  and  holiday  expenses. 
This  caused  a  demand  on  the  banks  for  gold,  for  it  will  be 
remembered  Bank  of  England  notes  are  not  issued  in  denomi- 
nations of  less  than  five  pounds.  The  joint-stock  banks 
declined  to  pay  out  gold,  telling  their  patrons  to  go  to  the 
Bank  of  England.  This  unprecedented  action  very  naturally 
frightened  the  public  and  stimulated  their  desire  for  gold, 
leading  to  heavy  demands  being  made  upon  the  Bank. 

During  the  extended  holiday  important  steps  were  taken 
to  insure  the  stability  of  the  financial  structure. 

The  Currency  Notes 

Provision  was  made  to  issue  Government  notes  in  denom- 
inations of  £1  and  of  10  shillings.  They  were  issued  by  the 
Bank  of  England  as  agent.  The  plan  was  to  lend  a  supply  of 
such  notes  to  each  bank  up  to  20  per  cent,  of  its  deposits. 
For  this  advance  the  banks  were  to  be  taxed  at  the  rate  of 
5  per  cent,  per  annum  upon  the  par  value  of  the  notes  bor- 
rowed. The  banks  were  thus  provided  with  funds  for  over 
the  counter  payments. 

Clearing  House  Certificates 

For  inter-bank  transactions  recourse  was  had  to  Clearing 
House  Certificates  a  device  adopted  from  American  practise 
in  times  of  special  stress.  These  certificates  were  protected  by 
the  deposit  of  securities  with  the  Clearing  House. 

The  Moratorium 

The  next  step  was,  on  August  4th,  to  declare  a  limited 
moratorium — that  is,  a  limited  period  during  which  creditors 
could  not  demand  payment  from  those  indebted  to  them. 


8] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[9 


This  was  at  first  for  one  month,  afterward  extended  to  three 
months. 

Protecting  the  Acceptance  Market 

The  most  important  action  at  this  time  was  the  provision 
made  on  August  13th,  that  the^Bank  of  England,  under  Gov- 
ernment guaranty  against  loss  to  itself  for  so  doing,  should 
discount  pre-moratorium  bills,  whether  drawn  by  enemy  aliens 
or  by  others,  without  recourse  to  the  holder,  "giving  the 
acceptor  the  opportunity  until  further  notice  of  postponing 
payment,  interest  being  payable  in  the  meantime  at  2  per 
cent,  over  bank  rate/'  This  offer  applied  not  only  to  such 
bills  of  exchange  as  were  customarily  discounted  by  the 
Bank  but  also  to  other  good  trade  bills  and  foreign  and 
colonial  acceptances. 

A  moment's  reflection  will  show  how  all  important  this 
action  was  and  also  the  importance  of  the  subsequent  arrange- 
ments for  securing  a  free  market  for  bills  of  exchange.  For 
years  London  had  been  the  banker  for  the  world.  The  system 
of  acceptances  had  helped  to  bring  this  about.  If  a  cofi^ee 
grower  in  South  America  sold  coffee  to  New  York,  or  to  Berlin; 
if  a  sugar  producer  in  Cuba  or  in  Java  sold  sugar  in  Constan- 
tinople or  in  Paris;  if  an  Indian  merchant  sold  articles  of  lux- 
ury; the  Chinaman,  tea;  the  American  or  the  Egyptian,  cotton, 
the  settlements  were  almost  invariably  made  through  London. 
The  Chinaman  might  sell  his  tea  in  New  York,  but  he  would 
arrange  for  payment  through  London.  The  New  York  tea 
buyer  through  his  bank  in  New  York  would  engage  a  London 
Acceptance  House  or  Bank  to  pay  the  Chinese  merchant  by 
accepting  a  draft  which  that  merchant  would  draw  on  the 
New  York  buyer  through  London.  To  meet  his  obligation 
the  New  Yorker  would  perhaps  buy  a  bill  which  a  wheat- 


grower  in  Minnesota  was  drawing  on  London  to  pay  for  wheat 
which  had  gone  to  France. 

These  bills  coming  in  from  all  parts  of  the  world  were  mu- 
tually cancelling  each  other,  while  during  the  period  they  had 
to  run  they  were  considered  the  choicest,  the  most  liquid 
asset,  next  to  actual  cash,  which  a  bank  could  hold.  If  a  bank 
required  ^money  to  meet  an  unexpected  demand  it  need  only 
offer  a  block  of  bills  in  the  market  and  thus  could  immediately 
obtain  the  funds  required. 

When  war,  involving  so  many  of  the  great  mercantile  na- 
tions, was  unexpectedly  declared,  the  banks  suddenly  found 
their  assets  "  frozen'" — entirely  unavailable.  Worse  than 
this,  there  were  bills  in  transit  which  they  and  the  acceptance 
houses  were  obligated  to  accept  upon  arrival  and  there  were 
millions  in  value  coming  due  day  by  day  which  they  were 
obligated  on  behalf  of  clients  to  pay.  Manifestly  this  was  the 
great  financial  problem  requiring  instant  attention.  This  situ- 
ation was  met  first  of  all  as  already  stated,  by  providing  a 
market  with  the  Bank  of  England  for  the  pre-moratorium 
bills.  A  few  weeks  later,  on  September  4th,  this  was 
followed  by  a  further  provision  whereby  acceptors  who  were 
unable  to  meet  the  pre-moratorium  bills  at  maturity  received 
the  necessary  funds  from  the  Bank  of  England  at  2  per  cent, 
over  Bank  rate.  By  this  process  endorsers  on  the  bill  were 
released.  The  loans  made  to  the  accepting  houses  were,  for 
the  most  part,  to  constitute  a  second  and  not  a  first  claim 
upon  their  assets.  This  greatly  increased  the  negotiability 
of  post-moratorium  bills  accepted  by  the  same  houses. 

Treasury  Bills  Issued 

On  August  19th  tenders  were  asked  for  £15  million  Treas- 
ury Bills  to  provide  for  the  immediate  needs  of  the  Govern- 


lol 


BANKERS  TRUST  COMPANY 


ment  in  connection  with  these  operations.  These  bills,  dated 
August  22d,  represented  the  first  public  issue  of  securities  for 
financing  the  war. 

To  obviate  the  risk  of  transporting  gold  across  the  ocean 
it  was  allowed  to  accumulate  for  account  of  the  Bank  of  Eng- 
land in  America  at  Ottawa,  in  South  Africa  at  Cape  Town, 
in  Australia  and  in  India.  Credits  were  granted  by  .the  Bank 
against  such  deposits. 

The  Stock  Exchange  Loans 

These  matters  having  been  arranged  it  was  necessary  to 
protect  the  Stock  Exchange  situation.  On  October  31st 
Government  measures  of  assistance  were  announced.  These 
provided  for  the  extension  of  bank  loans  to  members  of  the 
Stock  Exchange,  until  a  year  after  the  war,  and  with  no  in- 
crease in  margin.  Other  lending  institutions  not  able  to  give 
such  long  credits  were  permitted  to  obtain  advances  from  the 
Bank  of  England  on  Stock  Exchange  securities  up  to  60  per 
cent  of  their  value  on  July  27th.  Such  loans  also  were  to 
run  until  a  year  after  the  war. 

Advances  to  Export  Merchants 

On  November  4th,  a  very  interesting  arrangement  was 
made  between  the  Government,  the  banks  and  the  Associa- 
tion of  Chambers  of  Commerce  of  the  United  Kingdom  to 
promote  the  export  trade.  To  solvent  traders  were  to  be 
advanced  funds  equivalent  to  50  per  cent,  of  moneys  owing 
to  them  by  debtors  resident  abroad,  these  advances  to  be 
used  by  the  traders  to  continue  their  business  and  pay  their 
commercial  debts  to  other  traders  and  manufacturers.  It  was 
understood  that  the  moneys  provided  were  not  to  be  taken 
by  the  banks  to  reduce  loans  or  overdrafts  or  to  pay  bank 


ENGLISH  PUBLIC  FINANCE 


[II 


acceptances  but  were  to  be  solely  a  new  credit  free  for  meeting 
the  purely  trade  obligations  of  the  borrower  and  in  pushing 
his  business  as  rapidly  as  possible.  Any  loss  was  to  be  borne, 
75  per  cent,  by  the  Government  and  25  per  cent,  by  the  ac- 
cepting banks. 

Similarly,  the  cotton  trade  was  encouraged.  On  Novem- 
ber 1 6th  the  Government  arranged  a  fund  to  be  used  to  en- 
able  borrowers  to  meet  market  differences.  The  payment  of 
the  advances  was  guaranteed  as  to  50  per  cent,  by  the  Gov- 
ernment, 25  per  cent,  by  the  Liverpool  Cotton  Association, 
and  25  per  cent,  by  the  lending  bank. 

Success  Attending  These  Efforts 

Such  were  the  principal  emergency  measures  taken  during 
19 14  to  insure  as  nearly  as  possible  an  uninterrupted  progress 
of  the  banking  and  mercantile  community.  Although  the 
moratorium  was  not  formally  declared  ended  until  Novem- 
ber 4th,  we  have  the  word  of  Sir  Edward  Holden  as  authority 
that  actually,  as  far  as  the  banks  were  concerned,  **they  came 
from  under  it*'  in  September.  The  year  closed  with  a  heavy 
increase  in  deposits  and  with  a  large  increase  in  the  gold 
reserve  of  the  Bank  of  England  which  after  dropping  from 
£40  million  on  July  15th  to  £27  million  on  August  8th,  be- 
came £69  million  December  30th.  So  that  the  proportion  of 
reserve  to  liabilities  after  dropping  from  52^^  per  cent,  in 
July,  to  I4>^  per  cent,  in  August,  increased  to  33^^  per  cent, 
on  December  30th.  At  the  close  of  the  year  money  was  a 
drug  on  the  market — three  months  bills  being  quoted  at  2f^ 
per  cent. 

At  the  close  of  1914  it  was  estimated  that  some  £84  mil- 
lion of  special  loans  of  various  kinds  were  being  carried 
for  the  Government  by  the  Bank.    This  total  included  pre- 


12] 


BANKERS  TRUST  COMPANY 


moratorium  bills,  advances  to  traders  and  others  after  the 
expiration  of  the  moratorium,  sums  lent  on  Stock  Exchange 
securities,  and  so  on.  In  addition,  were  the  amounts  being 
carried  by  the  joint-stock  banks. 


Chapter  III 

War  Costs  and  How  They  Were  Met 

(1914-1920) 

TTAVING  reviewed  the  financial  measures  adopted  at  the 
^  -■•  beginning  of  the  war  to  save  the  general  business  situa- 
tion, and  especially  to  protect  the  banks,  let  us  turn  to  a 
consideration  of  the  direct  financing  of  the  requirements  of 
the  Government  itself.  The  immense  figures  involved  are  a 
matter  of  common  knowledge.  They  are  summarized  as  to 
the  classes  of  expenditures  and  as  to  sources  of  receipts  in 
the  tabular  statements  printed  below.  These  will  be  found 
to  repay  careful  study. 

We  may  now.  consider  the  financial  methods  used. 

Inflation  Methods   Used 

It  must  be  frankly  admitted  that  the  expenses  of  the  war 
were  financed  by  inflation  methods.  Not,  however,  the  same 
kind  of  inflation  practised  by  all  the  Continental  nations  of 
immense  issues  of  bank  notes.  England  did  issue  non-inter- 
est bearing  circulating  notes — the  Currency  (Treasury)  Notes 
already  mentioned— but  the  aggregate  of  £356  million  out- 
standing at  the  close  of  19 19  looks  very  modest  alongside  of 
the  billions  of  notes  issued,  for  example,  by  the  Bank  of 
France.  The  inflation  was  of  a  more  subtle  kind  but  perhaps 
even  more  potent.  It  was  inflation  by  the  use  of  bank  deposit 
credit. 

[13 


14 1 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[15 


Treasury  Bills 

Our  friend  the  Treasury  Bill — successor  to  the  Excheq- 
uer Bill  of  former  times — and  advances  from  the  Bank  of 
England  on  the  credit  of  Ways  and  Means  were  the  principal 
agencies  used  by  the  Government  to  transmute  bank  deposit 
credit  into  ships,  aeroplanes,  tanks,  ordnance,  munitions,  food 
and  clothing  for  the  soldiers,  separation  allowances  for  their 
families  and  finally  into  a  crushing  defeat  of  the  enemy. 

Taxation 

But  the  entire  dependence  has  not  by  any  means  been 
placed  upon  this  modern  Alladin's  lamp.  Taxes  have  stead- 
ily increased.  Where  in  the  first  year  of  the  war  they 
amounted  to  less  than  £200  million,  they  have  since  then 
mounted  year  by  year  until  in  the  fiscal  year  ended  March  3 1, 
1920,  they  yielded  nearly  £1,000  million !  The  principle  upon 
which  taxation  has  been  based  has  been  that  the  revenue 
receipts  should  at  least  provide  for  the  ordinary  peace  budget 
and  in  addition  for  the  interest  upon  the  debt  and  for  an 
annual  sum  to  be  applied  to  its  reduction.  This  ideal  has 
been  fully  realized  and  a  good  surplus  in  addition  to  apply 
toward  the  payment  of  the  military  and  other  special  expenses 
caused  by  the  war.  The  provision  of  a  sinking  fund,  while 
the  debt  was  a  growing  one,  may  be  criticised  as  chimerical 
but  doubtless  it  served  a  useful  purpose  as  a  fund  to  regulate 
the  market  for  the  war  bonds;  also  the  fact  that,  at  the  time 
of  incurring  the  debt,  provision  was  made  for  its  ultimate  pay- 
ment probably  had  a  real  value  in  establishing  confidence  in 
the  obligations  of  the  nation.     During  the  six  years  under 


review  the  income  from  taxation  and  from  non-tax  revenue, 
other  than  that  from  borrowings  provided  approximately  for 
35  per  cent,  of  the  first  yearns  disbursements,  22  percent,  of 
the  second  year's,  over  a  quarter  of  the  third  and  fourth 
year's  disbursements,  over  a  third  of  those  of  the  fifth  year 
and  for  more  than  80  per  cent,  of  last  fiscal  year's  expenses. 

Expenditure  of  War  Period 

The  total  expenditure  for  the  six  years  of  the  war  period — 
that  is,  for  the  fiscal  period  beginning  March  31,  1914,  and 
ending  March  31,  1920  aggregated  £11,268  million.     Of  this 
wartime  expenditure  £3,605  million  was  met  from  normal 
revenue  receipts;  £466  million  from  war  contributions,  re- 
ceipts from  sales  of  war  property  and  receipts  from  trading 
undertakings;  while  £7,196  million  came  from  borrowing,  or 
in  the  proportions  of  36.13  per  cent,  from  revenue  of  all  kinds 
and   63.87   per  cent,    from    borrowing.     Truly   stupendous 
figures  and  a  creditable  result  and  one  which  gives  great 
confidence  to  the  investor  in  the  nation's  bonds.    All  classes 
of  taxation  have  been  made  to  contribute  to  this  result,  but 
the  great  dependence  of  the  Exchequer  has   been  placed 
upon  the  property  and  income  tax  and  its  modern  run-* 
ning  mate,  the  excess  profits  duty.     Englishmen  and  their 
newspaper  editors  delight  in  heckling  and  finding  fault  with 
the  Administration,  as  we  would  say;  the  Government,  as 
they  say.     But  to  the  observer  3,000  miles  away,  quietly 
studying  the  figures  without  any  other  object  than  to  get  at 
the  facts,  the  results  achieved  seem  little  short  of  marvelous. 
They  could  only  be  obtained  in  a  country  where  patriotism 
runs  so  high  that  the  people  demand  to  be  taxed  and  taxed 
heavily,  as  we  are  assured  was  the  case  in  England  during  the 
course  of  the  war.     The  following  comparative  tables  of 


i61 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


['17 


income  and  expenditure  for  the  six  fiscal  years  19 14  to  1920, 
inclusive,  summarize  these  data: 

GOVERNMENT  INCOME— WORLD  WAR  PERIOD 
March  31,  1914  to  March  31,  1920 

In  Millions  Sterling 


Pet 

Cent. 

Years  Ended 

191S 

1916 

1917 

1918 

1919 

1920 

Total 

Aver- 

Total 

March  31 

• 

age 

Rev- 
enue 

Exchequer  balance 

10 

83 

26 

26 

21 

13 

10 

Tax  Revenue 

Customs 

39 

60 

71 

71 

103 

149 

493 

82 

12.06 

Excise 

4a 

61 

56 

39 

60 

133 

392 

65 

9.59 

Estate  duties 

28 

31 

31 

32 

30 

41 

193 

32 

4.72 

Stamps 

8 

7 

8 

8 

12 

23 

66 

II 

1.63 

Land,  house,  etc. 

3 

3 

3 

3 

3 

4 

18 

3 

.45 

Property  and  in- 

- 

come,  including 

super-tax 

69 

128 

205 

240 

291 

359 

1,292 

215 

31.72 

Excess  Profits 

•• 

140 

220 

285 

290 

935 

156 

23.01 

Total  Tax 

189 

290 

514 

613 

784 

999 

3.389 

565 

83.18 

p    Post-ofi&ce 

29 

34 

34 

35 

40 

44 

216 

36 

5.31 

fSundry 

8 

13 

25 

59 

65 

296 

466 

77 

II. 51 

Total  revenue 

226 

337 

573 

707 

889 

1,339 

4,071 

678 

100.00 

Borrowing  net 

410 

1,167 

1,629 

1,985 

1,682 

323 

7,196 

1,199 

Total  net  receipts 

636 

1,604 

2,202 

2,692 

2,571 

1,662 

11,267 

1,878 

Total  resources 

646 

1.587 

2,228 

2.718 

2.592 

1.675 

11,277 

Revenue 

%  Receipts 

35.  S3 

22.40 

26.02 

26.26 

34.58 

80.56 

36.13 

Borrowing 

%  Receipts 

64.47 

77.59 

73.98 

73.74 

65.42 

19.44 

63.87 

GOVERNMENT  EXPENDITURE-PERIOD   OF   THE 

WORLD  WAR 

March  31,  1914  to  March  31,  1920 

In  Millions  Sterling 


Per 

Years  Ended 

Grand 

Aver- 

Cent. 

March  31 

1915 

1916 

1917 

1918 

1919 

•1920 

Total 

age 

of 
Total 

Debt — Interest 

and  Management 

22 

60 

127 

190 

270 

332 

1,001 

166 

8.89 

Military  and  other 

special  war  ex- 

pense 

437 

1,399 

1,974 

2,403 

2,198 

1,146 

9.557 

1.593 

84.81 

Civil  Government 

78 

75 

75 

78 

85 

140 

531 

8^ 

4.70 

Post-office 

26 

27 

26 

26 

26 

48 

179 

30 

1 .60 

Total  Expenditure 

563 

1,561 

2,202 

2,697 

2,579 

1,666 

11,268 

1,878 

100.00 

Exchequer  balance 

83 

26 

26 

21 

13 

9 

9 

To  be  accounted  for 

646 

1,587 

2,228 

2.718 

2,592 

1,675 

11,277 

♦♦£140.000. 

flncluding  war  contributions  from  India,  and  other  over-seas  colonies  and  depen- 
dencies; also  receipts  from  sales  of  war  property  and  from  trading  undertakings,  etc. 


*Division  of  expenses  partly  estimated. 

Six  vs.  226  Years  Expenditure 

To  grasp  the  full  significance  of  these  figures  we  may  ad- 
vantageously compare  them  with  the  cost  of  government  for 
a  previous  period.  In  endeavoring  to  make  such  a  compari- 
son we  have  brought  out  the  startling  fact  to  which  reference 
has  already  been  made  that  the  expenditure  of  the  six  years 
of  the  war  exceeded  the  aggregate  expenditure  of  the  preced- 
ing two  and  a  quarter  centuries.  The  table  following 
visualizes  this  statement.  In  looking  at  the  figures  bear  in 
mind  that  during  the  long  period  of  226  years  there  were  eight 
major  wars,  fought  at  great  expense — expense  so  great  that 
the  thinking  people  of  the  times  were  appalled  thereby.  Be- 
sides these  major  wars  there  were  many  costly  military 


i8] 


BANKERS  TRUST  COMPANY 


expeditions,  the  growing  cost  of  civil  government  and  the 
ever  present  burden  of  the  public  debt.   Here  are  the  figures: 

GOVERNMENT  EXPENDITURE 
In  Millions  Sterling 

Civil  Mili-  Debt 

Govt.  tary  Charge  Total 

aX  Centuries  (1688-1914)      .     2,873  4,524  3,547  10.944 

6  Years  (1915-1920)     ...        710  9,557  1,001  11,268 


Total  (1688-1920) 


3,583         14,081        4,548        22,212 


This  is  the  burden  which  German  lust  for  power  and  ter- 
ritory placed  on  one  only  of  the  antagonists.  Fortunately 
England  has  the  ability  to  cope  even  with  such  a  burden,  but 
it  will  require  the  co-operative  work  and  savings  of  more  than 
one  generation  to  liquidate  the  £7,367  million  of  increased 
debt  which  the  war  has  left  as  its  aftermath. 

The  Budget^  ig20'ig2i 

On  April  19,  1920,  Mr.  Austen  Chamberlain,  Chancellor 
of  the  Exchequer,  presented  to  Parliament  the  budget  for  the 
current  year  to  end  March  31,  1921.  In  this  connection  Mr. 
Chamberlain  said:  "It  is  recognized  on  all  hands  that  the 
present  financial  year  is  of  great  importance  in  the  history  of 
Europe,  and  not  least  for  those  nations  who  emerged  victori- 
ous. Eighteen  months  have  elapsed  since  the  preliminaries 
of  peace  were  signed.  Though  peace  follows  on  limping  foot- 
steps the  time  must  come  when  each  of  us  should  set  his  house 
in  order,  and,  not  content  merely  with  facing  present  necessi- 
ties, lay  broad  and  deep  the  foundations  of  future  credit  and 
prosperity.  This  budget  is,  therefore,  a  critical  one.  The 
paper  in  the  hands  of  members  gives  details  of  the  result  of 
the  past  financial  year.'' 


ENGLISH  PUBLIC  FINANCE 


[19 


The  paper  referred  to  by  Mr.  Chamberlain  is  the  financial 
statement  always  laid  before  the  House  by  the  Chancellor  of 
the  Exchequer  when  opening  the  budget.  The  budget  sys- 
tem of  Great  Britain  is  described  in  a  subsequent  chapter. 
As  we  have  already  surveyed  the  finances  for  the  past  year 
we  may  proceed  at  once  to  consider  the  estimates  for  the  cur- 
rent year  to  end  March  31,  19  21. 

These  contemplate  a  total  expenditure  of  £1,184  million 
and  receipts  of  £1,418  million.  The  budget  provides  for  ex- 
penses of  £481  million  less  than  the  actual  expenses  of  last 
year  and  for  an  estimated  increase  in  revenue  from  all  sources 
except  borrowing  of  about  £79  million  or  an  improved  status 
of  the  finances  as  compared  with  the  past  year  of  £560 
million.  Therefore,  while  the  financing  of  the  past  year  re- 
sulted in  a  deficit  of  £3  26  million,  most  of  which  had  to  be 
made  up  by  new  borrowing,  it  is  expected  that  in  the  current 
year  there  will  be  a  surplus  of  £234  million  which  can  be 
applied  to  the  reduction  of  indebtedness. 

In  order  to  accomplish  this  result  Mr.  Chamberlain  an- 
nounced that  it  would  be  necessary  not  only  to  continue  the 
unpopular  excess  profits  tax  of  40  per  cent.,  but  to  increase 
this  tax  to  60  per  cent.  In  this  connection  Mr.  Chamberlain 
said:  "I  base  my  justification  for  the  proposal  on  the  con- 
tinued prevalence  of  temporary  conditions  occasioned  by  the 
war  and  arising  out  of  the  war  creating  a  condition  of  scarcity 
hardly  distinguishable,  in  effect,  from  a  monopoly,  thus  giving 
to  capital  engaged  in  industry  wholly  abnormal  and  often 
extravagant  profits.''  Mr.  Chamberlain  then  made  the  fol- 
lowing significant  reference  to  the  proposed  levy  on  war  cap- 
ital. He  said:  "The  qualification  to  which  the  increase  is 
subject  is  this:  The  House  is  aware  that  a  Select  Com- 
mittee of  this  House  is  now  inquiring  into  the  practicability 


20] 


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[21 


of  a  levy  on  war  increases  of  wealth.  If,  when  they  have 
completed  their  deliberations,  Parliament  should  decide  later 
on  to  impose  such  a  levy,  the  fund  thus  available  would  relieve 
the  pressure  of  the  financial  situation,  enabling  us  to  reverse 
the  decision  to  increase  the  rate  of  Excess  Profits  Duty  to 
60%.  I  should  therefore  propose  to  submit  to  Parliament 
a  bill  later  in  the  year  to  make  a  levy  on  increases  of  war 
wealth  to  cancel  this  increase  in  the  rate  of  Excess  Profits 
Duty  and  to  collect  Excess  Profits  Duty  for  the  year  at  the 
existing  rate  of  40%. 

"The  increased  revenue  to  be  derived  from  this  source  in 
the  current  year  on  the  assumption  that  the  rate  is  60%  will 
be  only  £10  million,  raising  the  estimate  of  the  total  revenue 
from  this  source  from  £210  million  to  £220  million.  More 
important  than  the  additional  £10  million  actually  received 
will  be  the  further  sums  accruing  but  not  collective  during  the 
present  year  amounting  to  £65  million  next  year  and  to  a  yet 
further  sum  of  £25  million  receivable  thereafter.  In  other 
words,  the  addition  to  the  tax  will  produce  £100  million  in 
all." 

The  other  proposed  changes  in  taxation  were  unimportant 
compared  with  the  one  above  referred  to.  They  comprised 
increased  rates  on  postage  and  for  telegrams  and  possibly  for 
telephone  service,  a  new  tax  on  motor  vehicles  instead  of  the 
existing  taxation  and  heavy  increases  in  taxation  on  spirits, 
wines,  beer  and  cigars.  Increased  taxes  on  transfers  of  stocks 
are  also  proposed,  while  adjustments  in  the  income  tax  are 
expected  to  result  in  a  reduction  by  £18  million.  A  new  cor- 
poration tax  is  also  proposed.  In  concluding  his  speech, 
Mr.  Chamberlain  said:  "These  changes  (in  taxation)  will 
produce  in  the  full  year  £198,230,000,  £9,500,000  to  be  drawn 
from  the  Post  Office  and  £189  million  derived  as  follows: — 


from  direct  taxation  £125  million,  from  indirect  taxation  £64 
million.  For  the  current  year  they  will  give  me  a  net  addi- 
tional revenue  of  £76,650,000,  making  a  total  revenue  for  the 
current  year  of  £1,418,300,000.  At  the  close  of  the  year  we 
shall  have  outstanding  assets  of  the  following  amounts:  loans 
to  the  Dominions,  £119,500,000,  loans  to  allies  and  for  relief, 
£1,767  million,  or  taking  them  as  in  former  years  at  half  that 
figure,  £883,500,000;  the  remaining  liability  of  India  for  five 
per  cent,  war  loan,  £21  million;  vote  of  credit  bonds  of  which 
a  portion  may  still  be  required  to  meet  extraordinary  charges, 
£300  million;  Excess  Profits  Duty  payable  after  the  close  of 
the  current  fiscal  year,  £400  million.    In  all,  assets  of  £1,724 

million. 

"In  addition  there  are  reparation  payments  from  our  late 
enemies,  the  amount  and  times  of  which  cannot  yet  be  fixed. 
Whatever  and  whenever  they  are  received  they  will  afford  an 
additional  sum  for  the  reduction  of  debt.  Against  expendi- 
ture, inclusive  of  sinking  fund,  of  £1,184  million  I  provide  a 
revenue  of  £1,418  million.  This  gives  me  approximately 
£234  million  for  the  redemption  of  debt  this  year— a  sinking 
fund  equal  to  three  per  cent,  of  the  total  debt.  Of  this  £234. 
million  over  £70  million  would  be  available  for  the  reduction 
of  the  floating  debt.  As  the  result  of  these  changes  there  is 
every  prospect  that  next  year  there  will  be  available  for  the 
reduction  of  debt  the  sum  of  £300  million,  of  which  one-half  at 
any  rate  will  be  free  for  the  floating  debt.  In  the  event  of  a 
normal  year  when  temporary  and  extraordinary  receipts  and 
charges  were  both  terminating  and  on  the  assumption  that 
the  Excess  Profits  Tax  has  also  been  brought  to  an  end,  there 
will  be  available  for  the  sinking  fund  a  balance  of  not  less 
than  £180  million. 

"I  am  content  to  say  that  after  such  a  war  as  that  in 


22] 


BANKERS  TRUST  COMPANY 


which  we  have  been  engaged  and  after  gigantic  financial  sacri- 
fices this  is  a  position  of  unexampled  and  unequalled  strain. 
It  is  true  that  to  attain  it  we  are  obliged  to  impose  fresh 
taxation  and  to  call  for  further  sacrifices.  We  may  not  bring 
popularity  to  the  Government  or  to  Ministers;  but  I  am 
proud  to  say  that  we  have  sought  in  our  budget  to  rise  to 
the  level  of  our  great  responsibility  so  that  when  we  render 
up  the  seals  of  office  we  may  leave  to  our  successors  an  ample 
revenue  and  to  our  country  a  national  credit  second  to  none/' 
During  the  course  of  the  debate  which  followed  the 
presentation  of  the  budget  one  of  the  members  made  the 
statement  that  two  such  budgets  would  destroy  the  Empire, 
to  which  Mr.  Chamberlain  replied,  "I  will  not  stop  to  retort 
that  twenty  such  budgets  would  redeem  the  whole  of  our 
debt.'' 


Chapter  IV 

The  War  Debt 

(1914-1920) 

TO  return  to  the  subject  of  the  debt.  The  method  pur- 
sued was,  in  the  first  instance,  to  secure  advances  from 
the  Bank  of  England  by  book  credits — called  "Ways  and 
Means  Advances" — or  to  sell  Treasury  Bills.  The  sales 
of  Treasury  Bills  have  far  exceeded  the  advances.  They  have 
been  sold  to  mature  at  various  periods  ranging  from  three 
months  to  a  year.  At  first  the  Government  sold  them  di- 
rectly to  the  Bank  of  England,  then  it  asked  for  tenders,  then 
it  put  them  on  sale  over  the  counter.  When  tenders  were 
asked,  the  bidder  stated  the  rates  of  interest  he  was  willing  to 
accept.  As  a  rule  it  has  apparently  been  found  more  satis- 
factory to  oflFer  the  bills  at  a  fixed  rate  of  discount.  This  dis- 
count rate  has  varied  with  the  market  rates  for  money.  The 
rates  offered  from  time  to  time  may  be  found  by  consulting 
the  table  printed  on  page  226. 

ii 

The  First  War  Loans 

'  The  second  step  in  the  process  of  debt  financing  was 
to  make,  at  convenient  intervals,  issues  of  long  dated  bonds 
from  the  proceeds  of  which  the  Treasury  Bills  outstanding 
were  reduced  or  retired,  new  issues  being  made  again  as  funds 
were  needed. 

It  would  be  tedious  to  burden  our  pages  with  a  detailed 
description  of  each  series  of  bonds  issued.  The  issues  now  out- 
standing will  be  found  described  in  the  National  Debt  State- 
ment to  be  found  on  page  208.  However,  it  will  be  quite  worth 

[23 


24] 


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[25 


f,  li 


while  and  of  interest  to  note  how  the  more  important  loans 
were  taken  by  the  public.  The  first  of  these  loans  was  for 
£350  million  in  three-and-a-half  per  cents.  It  was  offered  in 
November,  1914,  at  95  and  was  quickly  over-subscribed  by 
nearly  one  hundred  thousand  applicants.  The  next  loan  was 
offered  as  four-and-a-half  per  cents  at  par  in  June  and  July, 
191 5,  and  £570  million  were  taken  by  over  five  hundred  and 
fifty  thousand  subscribers  asking  for  an  average  of  about 
£1,000  each,  while  547,000  subscribers  bid  through  the  post 
offices  for  £15  million  bonds,  an  average  of  £26  6s  each.  Then 
there  was  the  Anglo-French  5%  loan  placed  in  the  United 
States  in  October,  191 5,  of  which  England's  share  was 
£51  million. 

T/ie  Foreign  Securities  Mobilization 

Then  came,  in  December,  1915,  the  scheme  for  the  mobili- 
zation of  the  foreign  investment  holdings  of  the  British  people 
and  their  use  to  stabilize  the  American  exchanges  and  to  create 
credits  in  America  against  which  purchases  of  munitions  and 
other  necessary  supplies  could  be  financed.  The  holders  of 
such  securities  were  asked  to  sell  them  or  lend  them  to  the 
Treasury  for  sale  in  America  or  for  use  as  collateral  behind 
issues  of  dollar  bonds  to  be  sold  in  the  United  States.  The 
owners  of  the  securities  used  as  collateral  received  a  certifi- 
cate entitling  them  to  the  interest  which  the  loaned  securi- 
ties yielded  plus  a  payment  at  the  rate  of  one-half  per  cent, 
per  annum.  The  Government  reserved  the  right  of  purchase, 
in  which  event  the  owner  was  to  receive  a  fair  market  rate 
for  his  bonds  or  stocks.  The  response  to  this  request  was 
spontaneous  and  resulted  by  the  end  of  19 16  in  the  acquisi- 
tion by  the  Treasury  of  American  stocks  and  bonds  of  a  par 
value  in  sterling  of  £465  million,  £118  million  by  purchase 


and  £347  million  on  deposit.  The  entrance  of  the  United 
States  into  the  field  in  April,  1917  as  an  active  participant  in 
the  conflict  put  an  end  to  the  necessity  for  further  important 
financing  of  this  kind.  The  result  of  the  operation  was  to 
maintain  New  York  exchange  at  practically  a  uniform  rate  of 
^4.76^16  until  March  21,  1919,  when  the  control  was  removed. 
Similar  operations  were  carried  out  for  the  stabilization  of  the 
Dutch  and  Scandinavian  exchanges.  For  the  entire  period 
the  total  securities  purchased  amounted  to  £241  million,  of 
which  amount  £46,600,000  were  purchased  by  the  Bank  of 
England  during  1915,  prior  to  the  inauguration  of  the  mobili- 
zation scheme.  The  deposits  on  loan  amounted  to  £414 
million.  The  latter  item  included  a  special  deposit  of  £8  mil- 
lion by  the  Canadian  Pacific.  Thus  the  total  amount  of 
securities  dealt  with  was  £655  million. 

The  War  Loans  in  igij 

In  January  and  February,  1917,  the  4%  and  5%  War 
Loan  met  with  an  enthusiastic  reception,  about  £1,000  million 
being  sold  for  cash.  This  time  applicants  through  the  Bank, 
numbering  1,089,000,  took  over  £819  million  bonds;  about 
one  million  applicants  through  the  post-office  took  nearly 
£31  million  while  it  is  estimated  that  over  four  million 
members  of  war  savings  clubs  participated  in  purchases  by 
such  clubs  of  around  £20  million  bonds.  Holders  of  about 
£131  million  Treasury  Bills  exchanged  them  for  these  bonds. 

War  Savings  Associations 

The  War  Savings  Clubs  were  one  of  the  finest  achieve- 
ments of  the  war  finance.  The  general  idea  was  adopted  in 
our  own  country  after  we  came  into  the  war  in  the  form  of 
our  W.  S.  S.  with  which  we  are  all  familiar.    In  England  there 


% 


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[27 


were  many  group  purchasers,  neighborhood  groups,  servant 
groups,  tradesmen  groups  and  the  like.  Sometimes  they 
pooled  their  purchases  and  offered  prizes  of  various  kinds. 
Then  when  a  permanent  war  loan  came  out  these  groups  used 
their  organizations  to  promote  the  sales  of  bonds  among  their 
numbers. 

It  is  of  interest  to  note  that  the  National  War 
Savings  Committee  was  inaugurated  by  the  British  Treas- 
ury in  February,  19 16,  on  the  advice  of  a  Committee 
presided  over  by  Lord  Montagu  of  Beaulieu.  Its  immediate 
functions  were: 

(i)  To  educate  the  public  as  to  the  necessity  for  saving 
and  for  the  reduction  of  unnecessary  consumption  by  all 
classes,  and  (2)  to  provide  facilities  for  the  small  investor  to 
invest  in  State  securities. 

War  Savings  Certificates  were  immediately  issued,  and  the 
National  Committee  proceeded  to  set  up  "War  Savings  Asso- 
ciations**. Decentralization  being  found  essential  to  the 
scheme,  Local  Savings  Committees  were  organized  through- 
out Great  Britain,  a  democratic  basis  therefore  being  im- 
parted to  the  scheme  from  the  outset. 

By  the  date  of  the  armistice  in  November,  191 8,  there 
were  some  eighteen  hundred  local  committees,  14,000  official 
agents  and  branches,  and  40,000  associations  numbering  not 
less  than  five  million  members.  More  than  a  quarter  of  a 
million  War  Savings  Certificates  had  been  sold,  and  the  sum 
of  nearly  £201  million  had  been  invested  in  the  certificates  by 
the  public. 

From  that  date  to  January,  1920,  nearly  £95^^  million 
sterling  had  been  subscribed  in  savings  certificates.  The 
average  number  of  certificates  sold  monthly  had  been  9  mil- 
lion while  the  withdrawals  were  approximately  only  ten  per 


cent,  of  the  total  issue.  The  amount  outstanding  on  Janu- 
ary I,  1920,  was  £267  million. 

At  a  great  gathering  in  London  on  January  15,  1920, 
Austen  Chamberlain,  the  Chancellor  of  the  Exchequer,  stated 
that  notwithstanding  the  success  in  popularizing  the  new 
forms  of  investment,  the  old  forms  had  risen  to  higher  figures 
than  they  ever  attained  before.  He  said  that  before  the  war, 
the  deposits  in  the  Post  Office  and  the  Trustee  Savings  Banks 
were  something  under  £300  million  while  by  the  end  of  Octo- 
ber, 1919,  they  had  risen  to  nearly  £800  million. 

Sir  Robert  Kindersley,  director  of  the  Bank  of  England, 
to  whom,  as  Chairman  of  the  National  Savings  Committee,  so 
much  of  the  success  of  the  whole  movement  is  due,  told  at  this 
same  meeting  how  the  army  of  voluntary  workers  for  national 
savings  enlisted  by  the  Government  from  19 16  onwards,  had 
captured  the  imagination  of  the  great  mass  of  the  people.  He 
dwelt  upon  that  innate  "spirit  of  adventure"  which  has 
made  the  British  Empire  what  it  is  to-day,  and  which  prom- 
ised to  make  the  movement  as  big  a  success  in  peace  as  in 
war  time;  and  emphasized  the  fact  that,  out  of  nearly  400  million 
War  Savings  Certificates  sold  since  the  inauguration  of  the 
movement,  1 24  million  had  been  disposed  of  since  the  armistice. 

As  far  back  as  the  middle  of  1917,  the  Commissioners  of  the 
British  Treasury  appointed  a  committee  to  consider  facilities 
to  be  given  to  the  small  investor  after  the  war  and  in  view  of 
the  genuine  success  which  the  movement  had  achieved,  this 
committee  recommended  the  permanent  continuance  of  the 
War  Savings  Certificate,  having  regard  to  the  main  fact  that 
the  habit  of  saving  had  been  formed  by  "numerous  persons  of 
all  classes  who  had  not  previously  acquired  it.'' 

In  November,  1918,  the  Committee  on  Financial  Facili- 
ties reported  that  it  was  enormously  impressed  by  the  great 


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[29 


increase  in  the  number  of  small  investors,  and  that  the  policy 
which  had  proved  so  successful  during  the  war  must  be  con- 
tinued at  all  costs.  It  was  decided  to  extend  the  "life**  of  a 
certificate  from  five  years  to  ten,  and  that  it  could  be  cashed 
at  any  time  during  that  period. 

Particular  attention  has  been  paid,  too,  to  the  educational 
value  of  the  moment.  Largely  owing  to  the  good  work  of  the 
educational  authorities  and  of  thousands  of  the  teachers 
themselves,  some  12,500  School  Associations  were  set  up  dur- 
ing the  war. 

In  October,  1919,  the  Board  of  Education  circularized  all 
the  local  education  authorities,  urging  upon  them  the  continu- 
ance of  the  war  savings  movement  in  schools.  To  this  appeal 
an  absolutely  unanimous  affirmative  was  given,  and  the  Na- 
tional Union  of  Teachers  was  requested  to  render  support  to 
the  National  Savings  Committee.  This  the  teachers  are  ac- 
cordingly doing  with  all  the  means  at  their  disposal,  and  with 
absolutely  unconquerable  optimism. 

As  Sir  Robert  Kindersley  summed  it  up: 

**  First  of  all  we  had  the  impetus  of  the  war,  the  desire  on 
the  part  of  everybody  to  try  and  help  to  win  the  war — that 
was  the  first  advantage  that  we  had.  But  we  should  have 
absolutely  failed  in  this  movement  if  we  had  simply  set  out  as 
a  pure  collecting  agency  of  money  for  the  State.  We  had  to 
have  behind  us  a  gospel.  In  fine,  it  was  from  the  outset  a 
gigantic  eflFort  in  unselfishness  on  the  part  of  an  entire  com- 
munity, which  has  seldom  if  ever  been  equalled  in  the  history 
of  humankind.'* 


National  War  Bonds — Continuous  Offering 

In  the  latter  part  of  1917  and  during  1918  and  1919  the 
Treasury  tried  the  interesting  experiment  of  abandoning 


spectacular  periodical  offerings  and,  instead,  of  putting 
on  continuous  sale  over  the  country  the  National  War 
Bonds.  The  idea  was  to  feed  the  bonds  out  from  day 
to  day  and  thus  to  have  a  steady  flow  of  money  into  the 
Treasury  of,  say,  £25  million  a  day.  The  bonds  were  issued 
as  fives  subject  to  taxation,  or  as  fours  "income  tax  com- 
pounded." While  the  expected  goal  was  not  reached,  yet 
the  sales  were  very  substantial.  The  amount  of  the  issue 
outstanding  at  the  close  of  1919  was  one  and  a  half  thousand 
million  sterling. 

Victory  Loan  of  i gig 

In  June  and  July,  1919,  the  Treasury  offered  what  was 
called  the  "Victory  Loan"  at  85,  and  in  conjunction  there- 
with the  "Funding  Loan"  at  80.  These  loans  bore 4%  inter- 
est.    Some  £776  million  bonds  were  sold. 

Summary 

The  funded  and  unfunded  debt  as  of  December  31,  1919, 
when  the  debt  had  reached  its  maximum,  was  £8,078  million 
held  by  over  17,000,000  investors.  This  compared  with  a  debt 
of  £711  million  on  August  i,  1914,  held  by  about  345,000- 
investors.  At  the  close  of  the  fiscal  year,  March  31,  1920, 
the  debt  stood  at  £7,973  million,  a  beginning  having  at  last 
been  made  toward  its  reduction. 

In  the  following  table  the  debt  is  summarized  according 
to  dates  of  maturity.  It  will  be  noted  that  about  one-fifth 
of  the  debt  matures  within  one  year  and  about  another  fifth 
within  five  years. 


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[31 


NATIONAL  DEBT 

Funded  and  Unfunded  as  of  December  31,  1919 

Per 
Million  Cent  of 

£  Total        Total 

Due  Within  One  Year: 

Ways  and  Means  Advances   ....  243,2 

Treasury  Bills 1,106,6 

Exchequer  Bonds 160,3 

Anglo-French  Loan 51,4 

Victory  Bonds 5,0        1,566,5           19- 39 

Due  Within  One  to  Five  Years 

Exchequer  Bonds 146,4 

Victory  Bonds 20,1 

Annuities 8,2 

War  Savings  Certificates 267,3 

Debt  in  United  States 48,5 

Debt  Due  to  United  States  Govt  .    .  867,4 
Other  debt  due  to  war — due  Foreign 

Nations  and  to  Dominions     .    .    .  329»8         1,687,7          20.89 

Due  Within  Five  to  Sixty  Years: 

Exchequer  Bonds 16,6 

Victory  Bonds 334»4 

National  War  Bonds 1,508,8 

War  Loans 2,122,6 

Debt  in  United  States 60,0 

Funding  Loan 409,1        4,45ii5          55-11 

Perpetual 

Annuities  for  life  and  term  of  years  .  11,8 

Consols 301,4 

Debts  due  to  Bank  of  England  ...  11,0 

Debts  due  to  Bank  of  Ireland    ...  2,6            326,8           4.04 

Miscellaneous: 

Other  Capital  Liabilities 46,2  .57 

Total 8,078,7         100.00 

The  outstanding  Treasury  Notes,  amounting  on  Decem- 
ber 31,  1919,  to  £356  million,  must  not  be  overlooked  in  con* 
sideling  the  debt.    However,  as  to  the  extent  of  £32,500,000 


they  are  covered  by  gold  and  Bank  of  England  notes  and  for 
the  rest  by  Government  interest-bearing  securities  which  are 
presumably  included  in  the  debt  statement,  they  probably 
need  not  be  added  to  the  above  total  of  £8,078  million  in 
order  to  determine  the  aggregate  debt. 

Proposed  Debt  Reduction 

The  British  Government  are  fully  alive  to  the  necessity 
for  reducing  the  debt  as  promptly  as  possible  and  particularly 
for  making  provision  for  the  debt  having  early  maturities.  We 
have  already  noted  in  connection  with  the  discussion  of  the 
budget  for  the  current  fiscal  year  that  during  this  year  the 
Government  purpose  to  reduce  the  indebtedness  by  the  sum 
of  £234  million.  The  London  Joint  City  &  Midland  Bank  in 
their  monthly  review  for  April,  1920,  estimate  that  possibly 
as  much  as  £300  million  may  be  available  for  debt  reduction. 
On  account  of  the  importance  of  this  matter  we  quote  their 
remarks  in  full: 

"If  expenditure  and  revenue  for  the  current  year  fulfill 
budget  estimates  the  surplus  will  be  about  234  millions.  Out  of 
this  surplus  the  Chancellor  estimates  that  about  160  millions 
will  be  required  for  the  Victory  Loan  Sinking  Fund,  for  can- 
cellation of  debt  through  revenue  payments  in  scrip,  for  the 
Depreciation  Fund  on  the  1917  War  Loans  and  for  provision 
to  meet  old  debt  (mainly  external)  maturing  in  1920-1921. 
The  balance  of  £74  millions  is  to  be  applied  to  reduction  of 
floating  debt.  In  arriving  at  this  figure  the  Chancellor  has 
apparently  not  taken  into  consideration  repayments  of  36^^ 
millions  on  account  of  Civil  Contingencies  due  before  Septem- 
ber 30,  1920,  or  the  proceeds  of  sales  of  Savings  Certificates 
during  the  financial  year.  We  show  in  the  appended  state- 
ment that  if  receipts  on  account  of  Civil  Contingencies  and 


\ . 


1. 
I 


3^1 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[33 


Savings  Certificates  are  included,  there  may  be  a  balance  of 
lis  millions  available  for  the  repayment  of  Treasury  Bills  and 
Ways  and  Means  Advances,  after  making  provision  for  the 
repayment  of  25  millions  of  Exchequer  Bonds  in  December 
next. 

ESTIMATED  CHANGES  IN  DEBT,  1920-21 

(000  omitted) 


Cr. 

Budget  Surplus,  1920-21, 

on    1919-20    basis    of 

taxation £157,548 

Add  estimated  revenue 

in  1920-21  from  new 

taxes 76,650 

Civil  Contingencies 

Fund — Repayments 

due  before  September 

30,  1920 36,490 

Sales  of  Savings  Certifi- 
cates, based  upon  net 

proceeds  3  months  to 

March  31,  1920  .   ,    .      29,840 


Dr. 
Victory  Loan  Sinking 

Fund £3,840 

Cancellations  through 
Death  Duty  Payments: 
Victory  Loan     .    .      10,000 
Other  War  Loans  .        5,000 
Cancellations  through 
Excess   Profits   Duty 

payments 60,000 

4%  and  5%  War  Loan 

Depreciation  Fund    .      31,920 
Repayment  of  Old  Debt 

♦(mainly  external) .   .      49,240 


£160,000 
5%    Exchequer    Bonds 

due  Dec.  i,  1920   .   .      25,378 


£185,378 


Available  for  repayment 
of  Treasury  Bills 
and/or  Ways  and 
Means  Advances    .    . 


115,150 


£300,528 


£300,528 


♦Presumably  the  Anglo-French  Loan.   H.  E.  F. 


If  the  above  estimates  prove  to  be  correct  the  amount  of 
debt  outstanding  on  March  31,  1921,  will  be  about  £7,565 
millions/' 


Refunding  Operations 

The  Chancellor  of  the  Exchequer  announced  on  April  28th 
his  intention  to  place  on  sale,  as  of  May  3d,  a  new  series  of 
Treasury  Bonds  with  the  avowed  object  of  reducing  the  float- 
ing debt  of  early  maturity.  The  amount  of  bonds  to  be 
issued  is  unlimited  and  they  will  be  on  sale  at  the  Bank  of 
England  until  further  notice.  The  principal  and  interest  of 
the  bonds  are  chargeable  on  the  Consolidated  Fund.  The 
bonds  will  be  repayable  on  the  first  of  May,  1935,  or  on  the 
first  of  May  in  any  one  of  the  years  1925  to  1934,  inclusive, 
at  the  option  of  the  Government  or  of  holders  of  the  bonds, 
on  notice  having  been  given  by  the  Treasury  or  the  holders 
during  the  month  of  April  in  the  year  preceding  that  in  which 
such  repayment  is  to  take  place. 

A  novel  plan  is  proposed  in  regard  to  payment  of  interest. 
We  quote  from  the  official  circular: 

"The  bonds  will  carry  interest  at  the  rate  of  5  per  cent, 
per  annum  payable  half-yearly  on  the  ist  May  and  ist  No- 
vember and  subject  to  the  conditions  stated  below,  will  carry 
additional  interest  payable  during  the  period  ending  ist  May, 
1925,  as  follows:  If  and  when  during  any  half-year  ended  ist 
May  or  ist  November,  the  Treasury  Bills  issued  to  the  Public 
were  sold  to  them  at  an  average  rate  of  discount  (as  certified  by 
the  bank  of  England)  exceeding  5J^%  and  under  6>^%  per 
annum,  additional  interest  will  be  payable  on  the  interest  date 
next  succeeding  such  ist  May  or  ist  November  at  the  rate  of 
1%  per  annum.  If  and  when  such  average  rate  of  discount 
was  6>^%  per  annum  or  over  additional  interest  will  be  pay- 
able at  the  rate  of  2%  per  annum. 

"The  first  interest  payment,  payable  ist  November,  1920, 
will  represent  in  the  case  of  each  bond  interest  to  that  date 


if: 


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ITT'? 


34] 


BANKERS  TRUST  COMPANY 


from  the  date  on  which  the  application  was  lodged  and  pay- 
ment made  for  the  bond,  and  will  include  additional  interest 
at  the  rate  of  2  per  cent,  per  annum. 

An  announcement  will  be  published  in  the  London  Gazette 
on  or  about  the  2nd  November,  1920,  and  thereafter  half- 
yearly  until  the  2nd  November,  1924,  of  the  rate  at  which 
Additional  Interest  (if  any)  will  be  payable  on  the  next  suc- 
ceeding interest  date." 

In  the  opinion  of  the  Chancellor,  the  novel  feature  in  re- 
gard to  the  payment  of  interest  will  probably  protect  holders 
against  depreciation  in  market  values  when  short-term  money 
rates  are  high  and  also  prevent  the  new  issue  of  bonds  from 
causing  further  depreciation  of  market  values  of  the  older 
issues.  The  maximum  possible  average  yield  from  the  new 
bonds  if  held  until  1935  would  be  £5  17s  4d  per  cent.  At  the 
time  of  issue  3>^%  War  Loan  was  selling  to  yield  £7  3  s  yd 
per  cent.;  4^%  War  Loan  £6  7s  6d  per  cent,  and  5%  War 
Loan,  £6  5s  id  per  cent.,  therefore  the  success  of  the  new 
issue  was  considered  problematical.  However,  the  Govern- 
ment is  so  fully  alive  to  the  importance  of  liquidating  or 
funding  the  floating  debt  and  the  debt  of  early  maturity  that 
any  modification  of  present  plans  necessary  to  insure  this 
result  may  confidently  be  expected. 

Credits  to  Debt  Account 

The  debt  on  March  31st,  1920,  of  about  £7,973  million 
was  offset  by  advances  of  £1,851  million;  say  to  the  Domin- 
ions of  £120  million  and  to  allied  governments  of  £1,731 
million. 

The  following  itemized  statement  is  taken  from  the  finan- 


ENGLISH  PUBLIC  FINANCE  [35 

cial  statement  already  referred  to  laid  before  the  House  upon 
the  opening  of  the  budget: 

LOANS  TO  DOMINIONS  AND  ALLIES 

March  31,  1920 

(00,000  omitted) 

Obligations  of  Dominions: 

Australia £5i»6 

New  Zealand 29,6 

Canada •     I9i4 

South  Africa 15,8 

Other  Dominions  and  Colonies 3,1 

£119,5 
Obligations  of  Allies: 

Russia £568,0 

France 5i4»8 

Italy 455»5 

Belgium  (a)  War 92,0 

(b)  Reconstruction 5,3 

Serbia 20,9 

Portugal,  Roumania,  Greece  and  other  Allies.  66,6 

Relief  Loans 8,0 

£1,7^1,1 
£1,850,6 


Further  advances  of  £36,000,000  provided  for  in  the  esti- 
mates 1920-21,  will  raise  this  total  by  March  31st,  1921,  to 
approximately  £1,886  million. 

Mr.  Chamberlain  in  his  budget  speech  estimated  the 
advances  to  the  allies  as  probably  realizable  at  about  fifty  per 
cent,  of  their  face  value.  This  would  afford  an  offset  of  about 
£1,000  million  against  the  gross  debt. 


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36] 


BANKERS  TRUST  COMPANY 


It  IS  understood  that  no  interest  has  been  charged  on  the 
pre-armistice  debt  of  Belgium,  Serbia  and  Montenegro.  It  is 
understood  that  in  the  case  of  Belgium,  the  French,  Ameri- 
can and  British  Governments  have  agreed  to  accept  German 
bonds  for  the  amount  of  Belgian  indebtedness.  In  other 
cases  interest  is  calculated  either  at  5  per  cent,  or  at  Bank 
rate  and  is  added  to  the  principal  of  the  loans  outstanding,  so 
that  no  payments  of  interest  on  pre-armistice  debt  have  been 
received  by  the  Exchequer  except  in  respect  of  a  single  trans- 
action where  special  arrangements  were  made.  Negotiations 
as  to  the  future  treatment  of  the  debts  of  the  allied  and 
associated  governments  are  proceeding  and  the  Government 
have  expressed  their  willingness  to  extend  to  their  debtors 
similar  treatment  to  that  which  may  be  arranged  in  respect 
of  their  own  debt. 

TAe  Comparative  Burden  of  the  Debt 

Assuming,  then,  about  £1,000  million  to  be  realizable 
from  debtor  nations  and  the  Dominions  the  net  indebted- 
ness of  the  nation  on  March  31,  1920,  may  be  placed  at 
£7,000  million  as  against  national  wealth  estimated  at  per- 
haps £24,000  million;  a  ratio  of  about  30%  net  debt  to 
national  wealth.  The  debt  charge  of,  say,  £360  million 
compares  with  estimated  national  income  of  about  £3,600 
million.  Therefore  the  debt  of  to-day  bears  about  the  same 
relation  to  wealth  that  the  debt  at  the  close  of  the  Napoleonic 
wars  bore  to  the  estimated  wealth  at  that  time.  The  interest 
charge  now,  at  10%  of  the  income,  compares  with  8%  in  1817. 

In  the  table  printed  on  the  opposite  page  further  interest- 
ing comparisons  are  made  with  conditions  at  the  conclusion 
of  the  Boer  War  and  on  August  i,  1914,  just  before  the  recent 
war  began. 


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38] 


BANKERS  TRUST  COMPANY 


ill 


The  great  progress  in  the  past  century  in  science  and  in 
its  application  to  the  arts  enabled  Great  Britain  to  expand 
her  business  and  increase  her  capital  at  such  a  rate  as  to 
steadily  reduce  the  burden  of  the  debt  in  comparison  with 
national  income  and  resources. 

It  is  impossible  now  to  determine  just  what  the  future  may 
have  in  store  to  mitigate  the  present  day  burden.  The  won- 
derful developments  in  air  navigation  during  the  war  and  the 
great  importance  which  the  chemical  industries  assumed  dur- 
ing that  period  may  afford  a  hint  of  surprises  in  store  which 
will  assist  in  lightening  to-day's  burden.  Potent  factors  in 
assisting  Great  Britain  to  create  new  assets  to  balance  her 
war  liabiHties  will  be  the  closer  knitting  together  of  the 
Empire,  the  further  colonial  development  in  Mesopotamia 
and  in  Africa,  and  redoubled  efforts  to  extend  her  commerce, 
especially  in  Russia  and  the  Far  East.  Lessons  in  efficiency 
taught  by  the  war  and  a  larger  use  of  machinery,  doubtless  will 
also  play  an  important  part  in  the  developments  of  the  future. 


Chapter  V 

How  the  Banks  Helped  Finance  the  War 

(1914-1920) 

FOR  the  benefit  of  those  who  are  not  familiar  with  banking 
operations  in  England  and  the  United  States  it  may  be 
explained  that,  as  a  usual  thing,  every  loan  made  by  a  bank 
results  in  an  increase  in  the  deposits  of  the  bank  or  of  some 
other  bank.  If  a  merchant  or  manufacturer  or  other  business 
man  borrows  at  his  bank  he  usually  has  the  amount  of  the 
loan  credited  to  his  account.  The  result  is  that  an  increase  in 
bank  loans  is  nearly  always  accompanied  by  an  increase  in 
bank  deposits.  Therefore,  an  increase  in  the  deposits  of  a 
bank  is  not  necessarily,  as  is  often  thought,  an  index  of  the 
increasing  wealth  of  a  community  but  often  merely  of  in- 
creasing business  activity,  or  simply  of  credit  expansion.  If 
the  increase  in  loans  and  consequent  increase  in  deposits  is 
brought  about  by  unproductive  borrowing,  this  gain  in  de- 
posits may  be  a  sign  of  financial  weakness  rather  than  an 
indication  of  growing  wealth. 

The  war  financing  in  England  and  in  America  was  effected 
by  the  use  on  a  large  scale  of  this  familiar  process  of  every- 
day banking.  Each  loan  issued  by  the  nation  increased  the 
loans  as  well  as  the  deposits  of  the  banks.  This  was  due  in 
large  part  to  the  fact  that  in  many  instances  the  purchasers 
of  government  obligations  borrowed  from  their  banks  in  order 
to  obtain  the  funds  with  which  to  pay  the  Government. 
These  loans  created  deposits  against  which  cheques  were 
drawn  to  the  order  of  the  Government — that  is,  in  England,  to 
the  order  of  the  Bank  of  England.  The  actual  payment 

[39 


I 


4ol 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[41 


if" 


i 

Hi 


I 


¥\m 


m 


Sill 


might  have  been  to  the  order  of  one  of  the  joint-stock  banks, 
but  ultimately  the  money  would  reach  the  Exchequer  through 
the  Bank  of  England.  The  Government  would  then  draw 
upon  this  deposit  tb  pay  its  expenses  for  munitions,  for  food 
and  clothing  for  the  enlisted  men  and  for  the  hundred  and 
one  other  needs  of  a  nation  in  a  time  of  war. 

Bank  Reserves  vs.  Credits 

The  extent  to  which  a  bank  can  extend  credits  to  its  cus- 
tomers is  determined  by  its  reserves,  in  England  often  called 
cash  balances.  As  a  result  of  long  experience  bankers  have 
found  that  on  the  average  only  a  certain  percentage  of  their 
deposits  is  drawn  upon;  the  balance  remains  more  or  less  as 
a  fixed  deposit.  This  balance  can  be  safely  loaned  to  the 
business  community,  but  a  reserve  in  the  form  of  actual 
money  or  its  equivalent  must  always  be  held,  out  of  which  the 
cheques  of  depositors  can  be  promptly  met. 

Such  a  fund  is  a  prime  essential  of  solvency.  In  England 
the  banks  have  established  the  custom  instead  of  holding  all 
of  this  reserve  in  actual  money,  of  keeping  the  greater  part 
in  the  form  of  a  deposit  with  the  Bank  of  England.  In  the 
United  States  the  member  banks  of  the  Federal  Reserve  Sys- 
tem, which  comprise  all  of  the  National  Banks  and  most  of 
the  large  State  banks,  are  required  to  carry  their  legal  reserve 
with  the  Federal  Reserve  Banks.  The  experience  of  banks  as 
to  the  amount  of  reserve  which  must  be  held  varies  with  their 
location,  the  nature  of  the  business  done  by  their  clients,  the 
season  of  the  year  and  other  conditions.  In  general,  it  is  found 
that  for  commercial  banks  (other  than  central  banks  of  issue) 
a  reserve  of  from  ten  to  twenty  per  cent,  of  deposits  is  ample 
in  normal  times.  That  is,  if  the  English  banks  have  on  hand 
in  gold,  Bank  of  England  notes,  and/or  deposits  with  the 


Bank  of  England,  say,  £100  million,  they  can  safely  maintain 
their  credits— that  is,  their  deposits,  which  result  chiefly  from 
loans,  at  from  £500  to  £1,000  million. 

How  the  Government  War  Loans  Were  Financed 

If  this  point  has  been  made  clear  we  are  now  in  a  position 
to  understand  how  banking  methods  were  applied  to  the  war 

financing. 

In  the  case  of  the  large  loans,  it  was  customary  to  divide 
the  payments  into  several  installments  spread  over  a  period 
of  weeks.  The  reason  for  this  arrangement  will  be  apparent 
when  the  process  of  settlement  is  considered. 

The  amount  which  the  banks  could  conveniently  handle 
in  one  payment  was  determined  by  their  reserve  which  con- 
sisted chiefly  of  their  deposits  with  the  Bank  of  England. 

The  process  of  payment  was  likened  by  the  late  Chairman 
of  the  London  Joint  City  and  Midland  Bank,  Sir  Edward  H. 
Holden,  to  the  revolutions  of  a  wheel. 

"The  banks  place  in  the  wheel  the  payments  they  make 
for  those  customers  who  have  subscribed  for  the  loans;  the 
wheel  carries  these  payments  to  the  credit  of  the  Government 
with  the  Bank  of  England,  and  the  subscribers  receive  their 
securities;  the  Government  then  places  in  the  wheel  cheques, 
in  payment  of  commodities  received  and  services  rendered, 
for  conveyance  to  their  creditors,  and  the  creditors  then  use 
the  wheel  to  carry  these  cheques  to  the  credit  of  their  ac- 
counts with  their  banks,  which  re-establishes  the  banks'  re- 
serves and  prepares  them  for  another  installment."  In  the 
case  of  Treasury  bills,  and  other  securities  sold  from  week  to 
week  in  relatively  small  amounts,  the  revolution  of  the  wheel 
was  rapid  enough  to  keep  pace  with  the  new  borrowing,  but  in 
the  case  of  the  large  loans  it  was  found  advisable  to  break  up 


42] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


l43 


i 


the  payments  into  installments,  so  that  each  installment 
might  have  time  to  get  through  the  Bank  of  England,  through 
the  business  firms  and  back  into  the  banks  before  another  in- 
stallment was  required. 

One  method  by  which  the  banks  developed  an  ability  to 
finance  the  stupendous  needs  of  the  Government  was  through 
a  utilization  of  the  credit  facilities  of  the  Bank  of  England. 
To  increase  their  clients'  ability  and  their  own  ability  to 
invest  in  Government  issues  they  would  borrow  of  the  Bank 
of  England.  These  loans  would  increase  their  deposits  with 
the  Bank  of  England  which  as  reserves  would  increase  their 
ability  to  grant  to  their  own  clients  loans  equivalent  to,  say, 
five  times  such  deposits. 

Ways  and  Means  Advances 

Another  and  most  important  way  in  which  the  banks  were 
used  to  finance  the  war  was  through  the  creation  of  direct 
credits  by  the  Bank  of  England  in  favor  of  the  Government. 
These  credits  are  known  as  "Ways  and  Means''  advances. 
How  the  Government  benefited  by  these  advances  and  how 
they  operated  to  create  credits  with  other  banks  we  will  allow 
Lord  CunlifFe's  "Committee  on  Currency  and  Foreign  Ex- 
changes after  the  War"  to  tell  us. 

In  their  final  report  laid  before  Parliament  in  December, 
1919,  the  Comnfiittee  draw  attention  "to  the  extensive  use 
made  during  the  war  of  the  system  of  ways  and  means  ad- 
vances from  the  Bank  of  England"  and  then  go  on  to  say: 
"The  powers  given  to  the  Government  by  Parliament  to  bor- 
row from  the  Bank  of  England  in  the  form  of  an  overdraft  on 
the  credit  of  Ways  and  Means  were,  as  the  name  implies,  in- 
tended to  enable  the  Government  to  anticipate  receipts  from 
revenue  or  permanent  borrowings  for  a  brief  period  only.  In- 


deed, Parliament,  by  expressly  providing  that  all  such  ad- 
vances should  be  repaid  in  the  quarter  following  that  in 
which  they  were  obtained,  showed  that  it  had  no  intention  of 
bestowing  upon  the  Government  the  power  of  securing  an 
overdraft  of  indefinite  duration  and  amount.  Under  the  exi- 
gencies of  war  finance  the  Government  found  it  necessary  to 
reborrow  in  each  quarter  on  the  credit  of  Ways  and  Means  the 
amount  needed  to  enable  them  to  comply  with  the  statutory 
requirement  that  the  previous  quarter's  Ways  and  Means 
Advances  should  be  repaid,  with  the  result  that  the  total  out- 
standing advances  remained  for  a  long  time  at  a  high  figure. 
We  are  glad  to  see  that  efforts  are  now  being  made  to  reduce 
this  overdraft  to  more  moderate  dimensions. 

"We  therefore  hope,  now  that  conditions  are  less  abnormal, 
that  the  Government  will  confine  its  use  of  Ways  and  Means 
Advances  from  the  Bank  of  England  to  providing  for  purely 
temporary  necessities.  Such  advances  afford  a  legitimate 
method  of  tiding  over  a  few  weeks'  shortage,  but  are  entirely 
unsuitable  for  borrowings  over  a  longer  period." 

In  their  interim  report,  submitted  in  August,  191 8,  the 
Committee  explain  how  these  advances  operated  to  swell 
bank  deposits  and  loans:  "This  process  has  had  results  of 
such  far-reaching  importance  that  it  may  be  useful  to  set  out 
in  detail  the  manner  in  which  it  operates.  Suppose,  for  ex- 
ample, that  in  a  given  week  the  Government  require  £10,- 
000,000  over  and  above  the  receipts  from  taxation  and  loans 
from  the  public.  They  apply  for  an  advance  from  the  Bank 
of  England,  which  by  a  book  entry  places  the  amount  re- 
quired to  the  credit  of  Public  Deposits  in  the  same  way  as 
any  other  banker  credits  the  account  of  a  customer  when  he 
grants  him  temporary  accommodation.  The  amount  is  then 
paid  out  to  contractors  and  other  Government  creditors,  and 


» 


Hlllir: 


JS^m 


44l 


BANKERS  TRUST  COMPANY 


* 


passes,  when  the  cheques  are  cleared,  to  the  credit  of  their 
bankers  in  the  books  of  the  Bank  of  England— in  other  words, 
is  transferred  from  "Public''  to  "Other''  deposits,  the  effect 
of  the  whole  transaction  thus  being  to  increase  by  £10,000,000 
the  purchasing  power  in  the  hands  of  the  public  in  the  form  of 
deposits  in  the  joint-stock  banks  and  the  bankers'  cash  at  the 
Bank  of  England  by  the  same  amount.  The  bankers'  liabili- 
ties to  depositors  having  thus  increased  by  £10,000,000  and 
their  cash  reserves  by  an  equal  amount,  their  proportion  of 
cash  to  liabilities  (which  was  normally  before  the  war  some- 
thing under  20  per  cent.)  is  improved,  with  the  result  that 
they  are  in  a  position  to  make  advances  to  their  customers  to 
an  amount  equal  to  four  or  five  times  the  sum  added  to  their 
cash  reserves,  or,  in  the  absence  of  demand  for  such  accommo- 
dation, to  increase  their  investments  by  the  difference  be- 
tween the  cash  received  and  the  proportion  they  require  to 
hold  against  the  increase  of  their  deposit  liabilities.  Since 
the  outbreak  of  war  it  is  the  second  procedure  which  has  in 
the  main  been  followed,  the  surplus  cash  having  been  used  to 
subscribe  for  Treasury  Bills  and  other  Government  securities. 
The  money  so  subscribed  has  again  been  spent  by  the  Gov- 
ernment and  returned  in  the  manner  above  described  to  the 
bankers'  cash  balances,  the  process  being  repeated  again  and 
again,  until  each  £10,000,000  originally  advanced  by  the 
Bank  of  England  has  created  new  deposits  representing  new 
purchasing  power  to  several  times  that  amount." 

How  this  process  actually  worked  out  is  described  in  the 
next  chapter. 


Chapter  VI 

The  War  Credit  Structure 
(1914-1920) 

THE  Credit  Structure  tables  to  which  the  attention 
of  the  reader  is  now  called  are  based  upon  the  pub- 
lished returns  of  the  Government  and  of  the  banks  made 
nearest  to  the  end  of  the  calendar  years  1913  to  1919  inclusive. 
The  purpose  is  to  compare  the  total  liabilities  of  the  nation 
on  account  of  the  debt  with  the  assets  of  the  banks  and  to 
compare  the  currency  and  the  bank  deposits  with  the  gold 
coin  and  bullion  impounded  in  the  coffers  of  the  joint-stock 
banks  and  of  the  Bank  of  England.  The  statistical  data  used 
are  taken  from  the  weekly  reports  of  the  Bank  of  England, 
from  the  Cunliffe  Committee's  reports,  from  a  paper  on  the 
Statistical  Aspects  of  Inflation,  by  Professor  J.  Shield  Nichol- 
son, read  before  the  Royal  Statistical  Society  in  June,  1917, 
from  the  Banker  s  Magazine  (London)  and  from  the  columns 
of  The  Economist  and  of  The  Statist. 

The  National  Debt  and  Bank  Assets 

Table  I  compares  the  year  to  year  changes  in  the  national 
debt  with  the  corresponding  changes  in  bank  assets.  It  is 
somewhat  of  a  surprise  that  the  Bank  of  England's  holdings 
of  Government  securities  do  not  more  fully  reflect  the  changes 
in  the  Ways  and  Means  advances.  However,  taking  the 
entire  debt  fluctuations  into  consideration  it  is  apparent  that 
the  assets  of  the  banks  have  fluctuated  with  the  changes  in  the 
debt,  and  that  bank  assets  have  grown  as  the  national  debt 
has  grown.  It  is  not  possible  to  make  close  comparisons  be- 
cause call  loans  are  reported  together  with  cash  in  hand  and 

[45 


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ENGLISH  PUBLIC  FINANCE 


[47 


at  the  Bank  of  England.  It  is  probable  that  some  of  the 
banks  treat  Treasury  bills  as  equivalent  to  cash,  while  others 
treat  them  as  investments  or  as  discounted  paper.  It  is 
interesting  to  note  that  most  of  the  debt  of  the  Government 
must  be  held  outside  of  the  banks  as  the  entire  increase  in 
the  assets  of  the  banks,  outside  of  plant,  from  the  close  of 
1913  to  the  close  of  1919  amounting  to  around  £1,200  million 
was  only  about  one  sixth  the  increase  of  the  debt.  If  then 
we  make  the  unlikely  assumption  that  the  entire  increase  in 
the  assets  of  the  banks  is  represented  by  holdings  of  National 
debt  or  loans  thereon  it  is  evident  that  over  £6,000  million 
of  debt  has  found  permanent  lodgment  with  private  and  cor- 
porate investors  other  than  the  banks,  and  that  they  are  not 
borrowing  against  such  holdings.  The  probability  is  that  a 
much  larger  amount  is  so  held  as  the  increased  assets  of 
the  banks  must  represent,  in  addition  to  Government  obli- 
gations, large  increased  holdings  of  business  paper. 

Note  and  Deposit  Currency  vs.  the  Gold  Reserves 

Tables  II  and  III  permit  of  a  year  to  year  study  of  the 
growth  of  the  note  and  deposit  liabilities  of  the  banks,  which 
may  be  said  to  represent  the  credit  facilities  of  the  nation, 
and  a  comparison  of  this  credit  structure  with  the  specie 

reserves. 

The  interesting  conclusion  at  which  we  arrive  is  that  in 
the  case  of  the  Treasury  Notes,  Bank  of  England  Notes  in 
circulation  and  bank  deposits,  the  percentage  of  reserve  in 
each  instance  has  fallen.  This  is  especially  noticeable  in  con- 
nection with  deposits  where  the  estimated  effective  gold  reserve 
held  against  all  deposits  on  December  31st,  1919,  was  only 
2.3  per  cent.  While  the  entire  credit  structure  increased  from 
£1,227  million  in  December,  1913,  to  £3,002  million  in  Decern- 


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ENGLISH  PUBLIC  FINANCE 


[49 


ber,  1919,  an  increase  of  144.7  per  cent.,  the  specie  reserves 
held  increased  only  from  £85  million  to  £160  million,  a  de- 
crease from  6.9  per  cent,  of  the  liabilities  to  5.3  per  cent. 

It  is  evident  that  in  the  diminishing  gold  reserve  and  the 
increasing  liabilities,  we  have  a  serious  situation. 

Hig/i  Prices  and  Bank  Credits 

Present  high  prices  are  easily  explainable  when  it  is  con- 
sidered that  the  actual  volume  of  commodities  required  to 
support  the  people  of  Great  Britain  is  probably  no  more  to- 
day, and  possibly  is  less,  than  it  was  before  the  war. 

It  is  doubtful,  too,  whether  the  physical  volume  of  trade 
has  increased  during  the  war  period.     Estimates  made  for 
the  United  States  by  Professor  E.  W.  Kemmerer  of  Princeton 
University  show  that  the  physical  volume  of  trade  for  our 
country  increased  from  1913  to  1919  only  9.6  per  cent.  There 
is  no  similar  computation  available  for  England,  but  Pro- 
fessor Kemmerer  believes  it  to  be  unlikely  that  the  actual  in- 
crease there  in  the  physical  volume  of  trade  during  the  same 
years  has  been  as  great  as  in  the  United  States.    He  thinks 
that  it  has  been  less.    If  this  is  true,  then  it  is  easy  to  un- 
derstand why  prices  have  advanced  in  the  marked  manner 
shown  by  The  Economist  Index  Number  of  commodity  prices 
printed  below.    If  the  adjustment  between  the  currency  and 
the  credit  structure  and  the  physical  volume  of  trade  is 
properly  made  the  normal  variation  in  the  rise  and  fall  of 
general  prices  will  not  be  great.    There  will  be  seasonal  de- 
clines when  new  crops  come  in   and  advances  as  the  bins 
become  empty,  but,  as  a  rule,  there  will  be  no  marked  devia- 
tion from  a  general  average. 

But  if  the  credit  structure  is  dislocated  or  if  there  is  an 
unusual  harvest  or  an  unusual  demand  such  as  is  caused  by 


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ENGLISH  PUBLIC  FINANCE 


[51 


war  then  the  price  level  will  reflect  these  conditions.  Let 
US  see  what  happened  between  1913  and  1920.  Taking  the 
price  index  of  December  31,  1913,  as  100  we  find  that  in 
1915  prices  rose  38  per  cent,  above  the  base.  During  the 
height  of  the  war,  in  1916,  1917  and  1918,  they  averaged  oyer 
twice  the  base  price,  but  with  the  war  over  they  kept  soaring 
and  by  the  close  of  1919  they  were  nearly  three  times  the  pre- 
war prices. 

Here  are  the  figures : 

ECONOMIST  PRICE  INDEX 


Increase 

Increase 

per  cent. 

Index  No. 

over  19 1 3 

over  1913 

.     2623 

Base 

100. 0 

.     2800 

177 

106.7 

•     3634 

lOII 

138.5 

.     4908 

2285 

187. 1 

.     5845 

3222 

222.8 

.     6094 

3471 

232.3 

.     7364 

4741 

280.7 

Dec.  31 

1913 
1914 

1915 
1916 

1917 

1918 

1919 


As  one  measure  of  inflation  we  may  profitably  study  the 
comparative  volumes  of  imported  goods  and  their  values  at 
the  custom  house.  There  is  no  common  denominator  of 
quantities.  Some  things  are  measured  by  tons,  others  by 
pounds  and  others  still  by  numbers.  Although  we  cannot 
add  together  all  of  the  commodities  imported  and  largely 
consumed  at  home,  we  can  select  certain  of  the  more  impor- 
tant commodities  and  take  their  testimony.  This  we  have 
done  in  the  following  table. 


IP 


52] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[S3 


3)     ilK 


ONE  EVIDENCE  OF  INFLATION 
Quantities  and  Values  of  Imports  Compared 

(In  millions) 


Calendar  Year 

Wheat,  cwts.. 
Beef,  cwts  .  . 
Sugar,  lbs.  . 
Tea,  lbs.  .  . 
Cotton,  cwts 
Wool,  lbs.  .    . 


19 13 

Quanti- 
ties 


105 

9 

39 

365 
22 

800 


Value 

£44 
16 

23 

14 

70 

34 


1918 
Quanti- 
ties 


58 

7 
26 

463 

15 

413 


Value 

£53 
36 

34 
29 

150 
36 


1919 
Quanti- 
ties 

71 
6 

32 
510 

19 
1,042 


Value 
£68 
30 
54 

34 
190 

97 


Thus  we  see  that  the  quantities  of  wheat,  beef,  sugar, 
cotton  and  wool  imported  in  191 8  were  materially  less  than 
the  quantities  imported  in  1913  and  yet  the  money  values 
were  greatly  higher.  While  in  1918  and  1919  the  imports 
of  tea,  and  in  1919  the  imports  of  both  tea  and  wool,  exceeded 
in  quantity  the  imports  of  1913,  yet  in  every  case  the  relative 
money  values  of  the  imports  is  materially  greater  than  the 
values  of  1913.  Could  there  be  a  better  illustration  of  the 
manner  in  which  a  disproportionate  increase  in  the  credit 
structure  leads  to  increases  in  prices.? 

The  imperative  need  for  a  firm  handling  of  the  credit 
situation  is  apparent.  Not  only  in  England,  but  in  all  other 
countries,  the  world  over,  must  there  be  practised  drastic 
economies  in  government  expenditures  and  every  effort  put 
forth  to  meet  expenses  from  taxation.  Government  borrow- 
ing, except  for  refunding  purposes,  should  cease.  At  the 
same  time  the  people  must  settle  down  to  productive  work. 
Meanwhile  it  is  the  obvious  duty  of  the  banks  to  hold 
speculation  in  check  and  gently  but  firmly  to  reverse  the 
process  of  inflation  which  the  war  made  necessary. 

The  tables  bring  out  in  bold  relief  the  manner  in  which 


* 


bank  credits  were  used  to  win  the  war.  They  also  show  the 
dizzy  heights  from  which  the  business  of  the  world  must 
cautiously  descend,  before  normal  conditions  nationally  or 
internationally  can  be  resumed. 

We  may  now  profitably  retrace  our  steps  and  consider  the 
history  of  English  public  finance  from  its  genesis  in  Norman 
days. 


iiii 


V    — 


ENGLISH  PUBLIC  FINANCE 


[55 


'  ili 


■  rr 


Chapter  VII 

Crown  Finance 
(1066-1688) 

n^HE  foundations  of  England's  present-day  financial  struc- 
-■-  ture  were  laid  broad  and  deep  centuries  ago.  The 
Exchequer  and  the  Treasury  can  trace  their  lineage  directly 
to  Norman  times,  possibly  even  to  the  times  of  the  great 
Alfred  himself.  There  have  been  a  Chancellor  of  the  Ex- 
chequer and  a  Treasurer  since  the  days  of  Henry  II— that  is, 
since  the  middle  of  the  twelfth  century. 

Books  of  account,  or  rather  Rolls  of  account  (for  the  ac- 
counts were  written  on  parchment  which  was  made  up  in 
long  strips  which  were  rolled  up  when  not  in  use)  are  extant 
from  the  reign  of  this  king. 

The  early  kings  had  extensive  demesnes  from  which  they 
derived  a  large  part  of  their  revenue.  Aside  from  this  source 
of  income,  the  receipts  of  the  Exchequer  during  all  of  these 
ages  have  come  from  three  principal  sources— from  internal 
taxation,  from  customs  and  from  borrowing. 

The  history  of  the  revenues  of  England's  kings  is  insepa- 
rably bound  up  with  the  history  of  the  development  of  her 
civil  rights.  The  fight  for  the  control  of  the  purse,  first 
formulated  in  the  terms  of  Magna  Charta,  wrung  by  the 
barons  from  the  tyrant  John  in  121 5,  was  only  won  after 
four  and  a  half  centuries  of  conflict  between  sovereign  and 
people.  The  word  "people"  is  used  here  and  elsewhere  in 
these  chapters  as  a  generic  term  referring  to  those  members  of 
the  body  poHtic  who  from  time  to  time  were  capable  of  taking 
part  in  public  affairs.  In  the  time  of  the  Norman  Kincs 
541  ^ 


probably  not  over  a  fifth  of  the  inhabitants  could  be  so 
classified.  The  growth  of  general  intelligence  which  has  at 
last,  in  a  sense,  fitted  the  greater  part  of  the  people  to  exercise 
the  rights  and  duties  of  citizenship  only  came  into  full  flower 

within  the  past  century. 

The  effort  on  the  part  of  the  sovereign  was  to  secure  an 
income  from  other  sources  than  from  taxation.  The  people, 
on  the  other  hand,  found  that  the  only  way  to  insure  just 
treatment  by  the  sovereign  was  to  keep  him  poor,  so  that  he 
needs  must  come  to  them  for  an  "aid"  or  a  "grant."  On 
such  occasions  they  could  insist  on  a^redress  of  grievances  or 
on  a  surrender  of  some  part  of  the  royal  prerogative  before  the 
grant  was  voted.  Thus,  little  by  little,  one  by  one,  were 
secured  the  liberties  which  old  England  and  ourselves  now 
enjoy.  "No  taxation  without  representation"  was  not  a  new 
formula  in  1776.    The  principle  had  its  beginnings  centuries 

before.  .         ,     t,       , 

We  are  to  study  English  public  finance  smce  the  Revolu- 
tion of  1688,  but  in  order  that  we  may  do  so  intelligently, 
we  must  first  consider  the  developments  of  the  six  centuries 
which  elapsed  between  the  advent  of  William  the  Conqueror 
in  1066  and  of  that  other  William  who  came  over  from 
Holland  in  1688,  at  the  request  of  a  little  band  of  patriots, 
to  help  them  rear  a  constitutional  government  on  the  founda- 
tion which  had  been  laid  by  their  forefathers  and  upon  which 
the  Stuart  Kings  had  tried  in  vain  to  build  for  autocracy. 

This  later  William  had  expected  to  receive  the  usual  life 
grant  from  the  customs  which  the  kings  and  queens  from 
time  immemorial  had  enjoyed.  The  Commons  declined  to 
make  this  grant  for  a  longer  period  than  four  years.  Thence- 
forward the  power  of  the  King  steadily  declined  and  the 
rights  of  the  people  steadily  increased  until  we  have  in  the 


\i 


ii 


i 


56] 


BANKERS  TRUST  COMPANY 


England  of  to-day  one  of  the  greatest  democracies  of  the 
world  and  of  any  time;  a  democracy  the  government  of  which 
IS  more  sensitive,  perhaps,  to  the  will  of  the  people  than  is  the 
case  even  in  our  own  United  States. 

Let  us  now  turn  our  attention  to  the  eleventh  century  and 
trace  the  course  of  public  finance  to  our  own  day. 

We  will  be  able  to  deal  only  with  the  facts  of  greatest 
importance. 


Chapter  VIII 
Revenues  of  the  Anglo-Saxon  Kings 

WHEN  William  the  Conqueror  arrived  from  Normandy, 
what  revenue  system  did  he  find  and  what  new  ideas 
did  he  bring  with  him  from  his  Norman  home? 

T/ie  King's  Demesne 

First  of  all  he  found  that  Alfred,  and  Edward  (called  "the 
Confessor")  and  his  son  Harold  had  enjoyed  great  landed 
possessions,  and  flocks  and  herds.  They  had  possessed  rude 
castles,  jewels  and  richly  embroidered  robes  of  state.  They 
had  had  a  royal  hoard  kept  in  the  King's  castle  where  there 
were  leather  bags  filled  with  the  roughly  minted  silver  coins 

of  the  time. 

The  germ  of  the  feudal  system  was  there  also. 

Trinoda  Necessitas 

The  revenues  of  the  Anglo-Saxon  kings  were  derived  from 
their  estates,  from  fines  imposed  as  penalties  for  the  infraction 
of  the  rude  laws  of  the  times,  and  from  certain  taxes  to  which 
every  land  owner  was  subject.     These  taxes,  known  as  the 
trinoda  necessitas ^  were  at  first  exacted  in  kind;  every  free- 
man when  legally  called  upon  was  obliged  to  appear  in  person 
for  the  purpose  of  repelling  the  enemy,  here-geld;  or  when  a 
city,  town  or  castle  or  a  fortress  for  the  public  defense  was  to 
be  built  or  repaired,  burg-hote;  or  when  bridges  necessary  for 
the  internal  commerce  of  the  country  were  to  be  built  or 
repaired,  brig-bote.     In  time  it  came  about  as  a  matter  of 
convenience  that  for  payments  in  personal  services  or  mate- 
rials a  money  equivalent  was  given. 

[57 


II 

i 


581 


ill 


'!(! 


ill 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[59 


Dane-geld 

These  taxes,  intended  to  meet  the  ordinary  contingencies 
of  day-to-day  life,  did  not  suffice  to  repel  the  attacks  of  the 
Danes.  These  were  not  infrequent,  and  were  marked  with 
every  species  of  devastation  and  horror.  Therefore,  in  the 
latter  part  of  the  tenth  century  it  became  the  custom  to  bribe 
the  Danes  to  stay  in  their  own  country.  As  usually  happens 
in  cases  of  bribery  and  blackmail,  the  Danes  continually  de- 
manded renewed  and  larger  payments.  The  tax  which  was 
laid  to  obtain  this  money  was  known  as  Dane-geld,  or  Dane- 
money,  and  was  raised  by  a  levy  upon  lands.  Ultimately 
this  tax  became  a  regular  source  of  income  to  the  Crown. 
Laid  ostensibly  for  the  defense  of  the  country  against  the 
Danes,  actually  it  was  used  for  any  purpose  to  which  it  might 
be  applied  by  the  King.  This  tax  was  very  odious  to  the 
people,  but  persisted,  except  during  the  reign  of  Edward  and 
Harold,  until  long  after  the  Norman  Conquest.  It  is  the 
first  instance  in  British  history  of  a  tax  laid  upon  lands.  It 
was  imposed  at  so  much  a  hide,  a  measure  which  may  be 
roughly  taken  to  have  been  about  one  hundred  acres. 

Other  Anglo-Saxon  taxes  which  endured  to  later  times 
were  the  hearth  tax,  a  payment  to  the  King  for  every  hearth 
in  all  homes,  except  those  of  the  very  poor,  and  ship-geld, 
money  raised  to  build  and  equip  a  ship  or  ships  for  use  in 
repelling  invasion.  This  latter  tax  was  levied,  as  a  rule,  only 
on  the  coast  towns. 

Purveyance 

Under  a  system  known  as  purveyance,  it  was  customary 
for  the  reeves,  or  sheriffs,  to  make  a  levy  of  goods  to  be  used 
for  the  maintenance  of  the  royal  household.     The  King  was 


entitled  also  to  a  share  of  the  produce  of  the  folk  land — that 
is,  land  held  in  common  by  the  residents  of  different  neigh- 
borhoods. 

Customs 

Probably  the  Anglo-Saxon  kings  had  some  revenue  from 
home  and  foreign  trade.   We  find  smiths  and  carpenters, 
fishermen  and  millers,  weavers  and  architects  mentioned  in 
old  chronicles  as  belonging  to  various  convents.     We  also 
find  the  merchant  asserting  the  dignity  of  his  calling.     "I  am 
useful,"  he  says,  "to  the  King  and  his  nobles,  to  rich  men  and 
to  common  folk.     I  enter  my  ship  with  my  merchandise, 
and  sail  across  the  seas  and  sell  my  wares,  and  buy  dear 
things  which  are  not  produced  in  this  land,  and  bring  them 
with  great  danger  for  your  good."     And  then  he  tells  what 
he  brings — "skin,  wine,  oil,  costly  gems  and  gold,  various 
garments,  pigments,  brass,  copper,  tin,  glass,"  and  so  on. 
This  whole  question  of  foreign  commerce  from  these  early 
days  until  now  is  of  intense  interest,  and  is  as  much  bound  up 
in  the  story  of  England's  business  life  as  the  question  of  pub- 
lic finance  is  inseparable  from  a  study  of  the  development  of 
England's  liberties. 

Licenses 

In  Anglo-Saxon  and  Anglo-Norman  times,  fairs  took  the 
place  of  shops.  In  the  beginning  they  had  a  distinctively 
religious  character  which  they  gradually  lost.  The  people 
were  in  the  habit  of  coming  together  to  perform  their  devo- 
tions in  the  churches  at  night-time  with  candles  burning. 
They  would  gather  in  the  church  porches  and  yards  for  social 
intercourse,  and  finally  "fell  to  lechery  and  songs,  dancing, 
harping,  piping  and  also  to  gluttony  and  sin."     Thus  was  laid 


Hi 


l« 


mm 


6o] 


BANKERS  TRUST  COMPANY 


the  foundation  for  those  periodical  fairs  which  are  held  even 
to  the  present  day.  It  was  natural  that  where  the  people 
were  gathered  together  the  merchants  should  bring  their 
wares  for  sale.  This  was  also  a  great  convenience  to  the 
people  when  the  means  of  traveling  were  bad,  and  opportuni- 
ties to  supply  their  needs  were  scant.  At  these  fairs  they 
could  barter  their  sheepskins  and  agricultural  produce,  or  any 
of  their  rough  local  manufactures,  for  the  wares  of  the  mer- 
chants. In  time  these  fairs  became  markets  which  were  held 
at  regular  places  at  regular  intervals,  probably  very  much  as 
is  still  the  custom  in  Russia  where  the  annual  fairs  play  such 
an  important  part  in  the  commercial  life  of  the  people.  It 
need  scarcely  be  pointed  out  that  the  thrifty  Anglo-Saxon 
and  Anglo-Norman  kings  turned  this  custom  to  good  ac- 
count as  a  means  of  revenue,  charging  fines,  or,  as  we  would 
say,  license  fees,  for  the  right  to  hold  the  fairs. 

The  Exchequer 

There  was  in  use,  too,  in  all  probability,  a  system  for  col- 
lecting and  caring  for  the  King's  revenues  very  similar  to  the 
system  which  William  had  in  use  in  Normandy — a  system 
which  persisted  in  part  at  least  until  the  times  of  Queen  Vic- 
toria, and  in  the  names  of  certain  officials  has  lasted  even  to 
this  year  of  grace  1920.  This  system  and  the  modern 
treasury  department  are  described  in  a  subsequent  chapter 
on  the  Exchequer. 


Chapter  IX 
The  King's  Prerogative 

WILLIAM  took  possession  of  all  the  royal  properties  and 
sources  of  revenue  and  grafted  on  to  these  the  Norman 
feudal  system  of  land  tenure. 

As  King,  William  claimed  the  royal  demesne,  the  royal 
forests  and  the  perquisites  of  royalty,  described  above,  en- 
joyed by  his  Anglo-Saxon  predecessors. 

The  Royal  Demesne 

This  was  of  vast  extent.  There  were  three  divisions: — 
the  forests  which  formed  the  King's  hunting  grounds  and 
were  secured  against  intruders  by  a  savage  code  of  special 
regulations  known  as  the  forest  laws,  the  land  held  by  the 
King's  rural  tenants  and  thirdly  the  holdings  of  urban  tenants. 
This  latter  division  included  most  of  the  cities,  boroughs  and 
towns  of  the  Kingdom  which  originally  had  been  founded  on 
the  folklands.    The  rents  of  these  towns  were  collected  by  the 

sheriffs. 

All  of  the  tenants  of  the  royal  demesne  were  liable  to 
assist  the  King  on  any  occasion  of  special  expense — even  to 
the  tenth  part  of  their  goods. 

Feudal  Aids 

As  feudal  lord  he  claimed  the  so-called  feudal  aids, 
namely,  the  right  to  levy  a  tax  for  his  ransom  should  he 
be  taken  prisoner  by  an  enemy;  the  right  to  receive  a 
generous  contribution  from  his  people  when  his  son  was 
invested  with  the  privileges  of  knighthood;  and  of  a 
corresponding  contribution  upon  the  marriage  of  his  eldest 

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daughter,  to  provide  her  with  a  dowry.  Under  the  feudal 
system  the  King,  in  addition  to  these  special  aids  which 
were  never  surrendered  until  six  centuries  later,  was  entitled 
in  time  of  war  to  the  personal  services  of  his  Knights,  who 
must  attend  him  with  a  complement  of  men,  equipped  for 
service. 

Purveyance 

Under  the  name  of  purveyance,  the  Ki^g  was  entitled  to 
impress  horses  and  vehicles  to  transport  him  and  his 
entourage  from  one  part  of  the  country  to  another.  He  was 
entitled  to  appropriate  any  food  or  other  articles  which  he 
required,  paying  for  them  such  prices  as  he  saw  fit;  this 
was  called  "preemption,**  but  in  process  of  time  was  merged 
with  the  Anglo-Saxon  idea  of  purveyance  already  noticed; 
the  two  rights  going  under  the  name  of  purveyance.  This 
constituted  a  most  obnoxious  form  of  imposition  which 
persisted  for  several  centuries. 

Fines — Bona  Vacantia 

Another  source  of  income  was  from  fines  for  trespassing 
upon  the  King's  domains,  especially  for  taking  wild  animals 
or  even  wood  from  his  forests  or  fish  from  the  streams 
therein.  As  the  fountainhead  of  justice,  the  King  was 
entitled  to  a  share  of  the  fines  levied  upon  criminals  of 
high  or  low  degree.  All  treasure  trove,  t.<?.,  money,  plate,  or, 
bullion  found  hidden  in  the  earth;  waifs,  or  goods  stolen  and 
waived;  stray  cattle,  wrecks  or  large  fish  belonged  to  the 
King.  These  were  known  as  Bona  Vacantia.  The  custody 
of  the  property  of  idiots  and  any  profit  accruing  after  provid- 
ing for  their  support;  also  estates  to  which  no  claim  could 
be  made  by  rightful  heirs  fell  under  this  head. 


If  all  of  these  sources  of  income  were  not  sufficient,  the 
King  might  debase  the  coinage;  he  might  ask  his  people  for 
presents — sometimes  called  contributions  and  subsequently, 
by  the  Tudors,  benevolences;  or  he  might  simply  extort  or 
exact  gifts  or  call  for  loans  which  he  might  or  might  not  pay 
as  the  spirit  moved  him.  It  may  be  noted  here  that  based  on 
the  so-called  voluntary  offerings  to  the  King  an  additional 
ten  per  cent  was  levied  for  the  personal  use  of  his  Queen— 
this  contribution  was  known  as  Queen's  gold. 

Having  seen  what  were  the  sources  of  the  King's  income  at 
the  time  of  the  Conquest  and  during  the  reign  of  the  Norman 
Kings  we  may  now  consider  the  subsequent  developments. 


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Chapter  X 

Crown  Revenues  Subsequent  to  the  Norman 

Period 

(1154-1688) 

^  I  ^HE  constant  effort  of  the  people  from  very  early  times, 
-*-  perhaps  not  at  first  a  very  definite  intention,  was  to  keep 
the  King  poor  so  that  he  would  need  to  come  to  them  for 
supplies.  Then,  by  withholding  money  grants  until  their 
grievances  were  remedied,  little  by  little  they  developed  the 
constitutional  rights  now  enjoyed. 

The  principal  sources  of  revenue  of  the  early  English  kings 
and  queens,  other  than  the  revenues  derived  from  their 
demesnes  and  prerogative  as  already  described,  were  the 
customs  duties,  internal  taxation,  borrowing  and  extortion 
in  various  forms. 

The  first  two  may  be  described  as  legitimate,  or  constitu- 
tional, sources;  the  last  as  a  method  of  evading  constitutional 
processes.  Borrowing  was  strictly  the  personal  act  and 
privilege  of  the  sovereign.  It  was  used  as  a  legitimate  means 
of  bridging  over  gaps  in  the  receipt  of  revenue.  Frequently, 
also,  it  was  used  as  a  means  of  avoiding  the  necessity  of  ask- 
ing Parliament  for  a  grant.  It  was  often  only  a  disguised 
form  of  extortion. 

It  may  be  of  interest  briefly  to  consider  each  of  the  sources 
of  income. 

The  Customs 

The  King's  right  to  exact  tolls  on  goods  going  out  of  or 
entering  the  kingdom  is  supposed  to  have  grown  out  of  the 

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idea  of  purveyance.   Certain  it  is  that  the  right  to  prisage— 
that  is,  to  take  goods  or  chattels  in  kind— and  to  the  collection 
of  tolls  or  duties  on  wool  and   other  exported  goods  was 
exercised  from  an  early  date  and  was  prized  by  all  the  kings 
reigning  down  to  the  Revolution  as  one  of  the  choicest  of 
their  hereditary  privileges.     It  came  to  be  understood  that 
without  parliamentary  grant  the   King  could   collect  what 
are  called  in  Magna  Charta  "the  ancient  and  equitable 
duties."     These  consisted  of  an  export  duty  which  was  col- 
lected on  wool,  wool-fells  (that  is,  skins  with  the  wool  at- 
tached) and  upon  leather.     The  King,  as  one  of  his  preroga- 
tives, was  entitled  to  two  casks  of  wine  out  of  every  cargo. 
This  right  was  afterward  reduced  to  a  definite  tariff  on  wine 
and  was  known  as  the  "New  Customs."     In  the  time  of 
Edward  I,  toward  the  end  of  the  thirteenth  century,  the  cus- 
tom arose  of  granting  the  King,  for  life,  duties  known  as  "tun- 
nage"  and  "poundage."     These  duties  were  levied  upon  every 
tun  of  wine  and  upon  every  pound  of  merchandise  imported; 
also  at  times  upon  exports.     They  were  levied  in  addition  to 
the  old  and  new  customs  duties. 

In  addition  to  the  hereditary  duties  and  the  life  grant  of 
tunnage  and  poundage  the  King  received  customs  subsidies, 
as  they  were  called.  The  subsidy  was  a  parliamentary  grant 
in  excess  of  those  already  described.  These  grants  were 
made  from  time  to  time  as  called  for  by  the  exigencies  of  the 
King's  affairs.  In  times  of  war  they  were  greater  than  in 
times  of  peace.  They  were  always  granted  for  short  periods. 
The  customs  revenues  were  especially  prized  by  the 
earlier  kings  of  England  even  down  to  the  time  of  the  Revo- 
lution, because  there  were  so  many  ways  in  which  they 
could  be  utilized  to  maintain  a  position  independent  of  par- 
liamentary control.     Some  of  the  kings  formed  the  practice 


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of  dealing  directly  with  the  merchants  in  connection  with 
customs  matters  and  thus  obtained  an  informal  revenue  in 
addition  to  that  levied  by  law. 

From  early  times  the  right  to  levy  customs  duties  was 
used  both  by  King  and  Parliament  to  promote  home 
manufactures.  This  use  of  the  tariff  to  regulate  commerce 
and  to  develop  home  industries  was  continued  until  well 
into  the  reign  of  Queen  Victoria,  when  the  free  trade  regime 
began. 

Internal  Taxation 

The  mediaeval  forms  of  taxation  forecast  most  of  the 
methods  now  in  use.  There  were  poll  taxes,  a  species  of 
house  tax  called  "hearth-money,*'  land  taxes,  taxes  on  per- 
sonal  property  and  taxes  upon  income.  There  were  also 
special  taxes  upon  the  Jews  and  upon  aliens  residing  in  the 
country. 

The  land  tax  may  be  traced  back  to  feudal  times.  In  the 
very  early  days  it  was  directly  assessed  by  the  King  upon 
the  landed  proprietors.  However,  because  of  the  abuse  of 
this  right,  it  was  provided  in  Magna  Charta  that  no  scutage 
or  aid  (the  name  under  which  the  form  of  land  tax  then  levied 
was  known)  should  be  imposed  unless  with  the  consent  of  the 
Common  Council  of  the  realm,  excepting  for  ransoming  the 
King  s  person,  making  his  eldest  son  a  Knight  or  marrying 
his  eldest  daughter;  and  even  then  only  a  reasonable  aid  was 
to  be  demanded.  In  the  course  of  time  the  land  tax  came 
to  be  included  under  the  general  name  of  subsidies. 

A  subsidy  was  properly  neither  a  tax  upon  personal  or 
landed  property,  but  upon  income.  Every  description  of 
persons,  in  proportion  to  their  reputed  estates,  paid  after 


jthe  nominal  rate  of  four  shillings  in  the  pound  for  lands  and 
2s.  6d.  for  goods,  while  aliens  paid  in  a  double  proportion. 

One  of  the  earliest  forms  of  taxation  dating  from  the  reign 
of  Edward  III,  say,  from  1334,  and  in  use  until  the  time  of 
James  I  (1603-1625)  was  a  tax  on  personal  property  known 
as  "tenths  and  fifteenths.''  The  tenth  was  a  grant  laid  upon 
the  movables  or  personal  property  of  residents  of  cities  and 
towns  within  the  demesne,  and  the  fifteenth  was  a  grant 
from  the  counties  outside  the  demesne.  The  amount  for  each 
district  was  established  in  1334  and  thereafter  was  never 
changed.  Thus  each  district  knew  exactly  how  much  it  was 
expected  to  provide.  Parliament  in  making  grants  would 
specify  that  one  or  more  tenths  were  to  be  granted,  or  if  only 
a  small  sum  were  needed  half  of  a  quota  might  be  granted. 

During  the  regime  of  the  Long  Parliament  (1640-1653)  a 
form  of  taxation  was  introduced  calling  for  monthly  pay- 
ments. These  taxes  were  assessed  on  both  personal  and 
landed  property.  They  were  found  to  be  so  superior  to  the 
former  mode  of  subsidies  that  under  the  name  of  land  tax 
they  became  a  regular  method  of  taxation  in  use  for  many 
years  thereafter  and  superseded  the  old  assessments  of  subsi- 
dies and  tenths  and  fifteenths. 

Indirect  taxation,  except  as  exemplified  in  the  customs, 
was  unknown  in  England  until  the  middle  of  the  seventeenth 
century  when,  in  1643,  the  Long  Parliament  adopted  from 
Holland  a  system  of  excise  taxes.  This  method  of  disguised 
taxation  from  that  time  became  increasingly  popular  with  the 
Exchequer  Department  because  thus  it  was  possible  to  keep 
down  the  taxation  upon  the  rich  landed  classes  and  to  obtain 
what  amounted  to  a  very  heavy  tax  from  the  consumers  of 
various  articles — chiefly  beer  and  spirits,  but  later  on,  of  tea 
cocoa  and  other  articles — without  their  realizing  that  they 


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were  paying  taxes.  As  time  went  on,  this  form  of  taxation 
was  used  on  occasion  to  regulate  the  sale  of  spirits  when  the 
Government  felt  that  their  use  was  endangering  the  moral 
status  of  the  nation.  Again,  the  finance  ministers  directly 
encouraged  the  consumption  of  spirits  in  order  that  the 
revenue  from  the  excise  might  be  increased.  To-day  this 
form  of  taxation  provides  a  very  important  portion  of  the 
revenue  of  the  State. 

The  post  office  dates  from  the  time  of  the  Long  Parlia- 
ment, but  as  the  charge  for  its  services  usually  provides  very 
little  revenue  to  the  State,  the  receipts  of  this  department 
can  hardly  be  considered  a  form  of  taxation. 

Taxes  of  To-Day  and  Their  Origin 

It  is  of  interest  to  run  over  the  heads  of  taxation  as  given 
in  to-day*s  official  Finance  Accounts  and  to  note  how  the 
most  important  of  these  taxes  had  their  origin  prior  to  the 
time  of  the  Revolution.  For  instance,  we  have,  in  order,  the 
Customs  dating  back  to  the  earliest  times;  the  Excise  dating 
back  to  the  Long  Parliament;  Stamps — first  introduced  in 
1 67 1 — imposed  by  a  statute  entitled  "An  Act  for  laying  im- 
positions on  proceedings  at  law."  The  Land  Tax  persists  but 
now  affords  a  very  slight  part  of  the  revenue,  although  for 
hundreds  of  years  it  was  of  great  importance.  The  Houst 
Duty  may  be  said  to  be  the  modern  form  of  hearth  tax  which 
under  the  name  of  "fumage"  dates  back  to  Anglo-Saxon 
times.  Property  and  Income  tax — the  first  levy  of  a  tax 
of  this  kind  dates  back  to  the  reign  of  Richard  I  in  the  latter 
part  of  the  twelfth  century.  It  will  be  remembered  that 
upon  his  return  from  his  memorable  crusade  to  the  Holy 
Land,  Richard  was  captured  by  the  Emperor  of  Germany  and, 
in  order  to  effect  his  release,  was  compelled  to  pay  a  very 


heavy  ransom.     It  was  to  help  raise  the  money  for  the  pay- 
ment of  this  ransom  that  the  first  tax  in  the  nature  of  an 
income  tax  was  laid.    This  tax  was  both  an  income  tax  and 
a  personal  property  tax  and  called  for  one-quarter  of  the 
revenue  or  goods  of  every  person  in  the  realm.    The  Excess 
Profits  Duty  is  a  modern  form  of  the  income  tax.     Land 
Value  Duties  are  another  form  of  the  land  tax.     The  Post 
Office  we  have  already  seen,  dates  from  the  time  of  the  Pro- 
tectorate.    Crown  Lands  ^  prehistoric  source    of    income, 
still  figure  in  the  statement  and  actually  yield  to-day  more 
than  the  land  tax.     Thus  with  the  possible  exception  of  Estate 
Duties  only,  the  present  main  forms  of  taxation  all  had  their 
origin  in  med^iaeval  times,  or  at  least  date  from  a  time  prior 
to  the  period  of  the  Revolution  of  1688.     Even  in  the  last 
case  we  have  an  ancient  parallel  in  the  fact,  as  stated  on 
page  62,  that  estates  to  which  no  claim  could  be  made  by 
rightful  heirs  reverted  to  the  King. 

The  Church 

A  large  portion  of  the  revenues  of  the  mediaeval  kings  was 
drawn  from  the  church,  which  is  stated  to  have  held  in  the 
iSth  century  a  fourth  of  the  landed  property  of  the  Kingdom. 
Taxation  was  supplemented  by  extortion  and  finally  in  the 
reign  of  Henry  VIII  by  the  wholesale  confiscation  of  church 
properties. 

Extortions 

We  have  now  reviewed  the  regular  sources  of  Crown  In- 
come. The  pre-Revolution  sovereigns  were  perpetually  living 
beyond  their  income  and  frequently  were  at  swords*  points 
with  Parliament.  Therefore  they  exercised  their  ingenuity 
to  discover  means  of  meeting  their  expenses  without  going  to 


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Parliament.     To  this   end   they   pushed   their  prerogative 
rights  to  great  extremes.     By  collusion  with  the  judges  they 
punished  infractions  of  the  laws  with  severe  fines.   As  stated 
above,  they  made  levies  on  the  religious  orders  and  upon  the 
church,  and  Henry  VIII  confiscated  church  properties.     They 
made  forced  loans  from  their  subjects  of  high  and  low  degree 
which  they  forgot  to  pay.   They  created  new  orders  of  nobility 
for  initiation  into  which  they  made  heavy  charges.    They  went 
around  among  their  subjects  almost  hat  in  hand  asking  for 
gifts— "  benevolences/'    they    were    called.     They    granted 
licenses  for  various  acts.    They  engaged  in  business  enter- 
prises and  had  part  interests  in  privateering  expeditions. 
Then  there  was  the  loot  and  the  spoil  of  the  wars  in  which 
most  of  them  engaged.     One  favorite  method  of  supplying 
national  requirements  and  of  filling  his  private  purse  was  for 
the  King  to  grant  the  right  to  monopolize  certain  lines  of 
manufacture  or  of  business  and  finally,  if  all  else  failed,  the 
coinage  might  be  debased  and  the  seigniorage  realized. 

Coinage 

The  first  debasement  of  the  coinage  recorded  is  in  the 
reign  of  Edward  I  when,  in  the  year  1300,  the  penny  was 
reduced  one-half  grain  in  weight,  so  that  243  pennies,  instead 
of  240  as  before,  were  struck  from  a  pound  of  silver.  In  1344 
and  again  in  1346  the  standard  was  further  lowered,  raising 
the  number  of  pennies  in  the  pound  to  270.  In  the  reign  of 
Edward  IV,  in  1464  and  1465,  the  number  of  pennies  to  the 
pound  was  raised  to  450.  Henry  VIII  debased  the  coins  sev- 
eral times  so  that  at  the  end  of  his  reign  the  silver  coins  con- 
tained only  one-seventh  of  the  pure  metal  that  went  to  the 
same  coins  of  25  years  before. 

One  of  the  notable  events  of  Elizabeth's  reign  was  the 


restoration  of  the  coinage.  This  she  arranged  before  she 
had  been  two  years  on  the  throne.  It  is  said  to  have  been 
necessary  for  her  to  borrow  two  hundred  thousand  pounds 
from  the  city  of  Antwerp  in  order  to  carry  through  this 
reform.  Even  Elizabeth,  with  all  her  inherent  love  for  finan- 
cial honesty,  was  prevailed  upon  to  have  a  base  coinage 
struck  for  use  in  Ireland,  while  in  the  forty-third  year  of  her 
reign  she  was  persuaded  to  have  sixty-two  instead  of  sixty 
shillings  minted  from  the  pound  of  silver.  Since  the  reign 
of  Elizabeth  no  sovereign  has  ever  attempted  to  debase  the 
coin  of  the  realm.  However,  through  sweating  and  clipping, 
the  coinage  had  become  so  debased  at  the  time  of  the  Revo- 
lution that,  necessarily,  one  of  the  first  acts  of  William  III  was 
to  take  steps  for  its  restoration. 


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Chapter  XI 

Crown  Debts 
(1216-1688) 

TJTENRY  III  (i  216-1272)  is  the  first  king  of  England 
^  A  whose  debts  are  recorded  in  history.  In  the  i6th  year 
of  his  reign  they  had  become  so  great  that  Parliament  was 
obliged  to  grant  an  "aid"— that  is,  a  tax— to  assist  him  in 
paying  them  off.  He  is  said  to  have  pawned  the  jewels  of 
the  crown,  his  robes  of  state  and  other  royal  ornaments 
and  even  the  shrine  of  St.  Edward.  Matthew  Paris,  the 
chronicler  of  this  period,  states  that  he  owed  so  much  to  so 
many  different  people,  for  the  very  necessities  of  life,  that  "he 
durst  hardly  appear  in  public  for  the  clamor  of  his  creditors." 
Henry  borrowed  from  the  Italian  merchants,  from  the  Jews, 
from  his  own  brother— in  fact,  when  and  where  he  could. 

Interest  Payments  Forbidden 

The  sentiment  of  the  time  was  strongly  against  the  pay- 
ment of  interest,  or  "usury,"  as  it  was  called;  in  fact,  such 
payments  were  interdict  by  the  church.  However,  in  case 
of  the  non-payment  of  a  loan  when  due,  a  charge  could  be 
made  for  the  inconvenience  to  which  the  lender  had  been 
subjected  by  such  delay.  Such  charges  sometimes  ran  as 
high  as  ten  per  cent,  a  month. 

Thereafter  scarcely  a  reign  passed  without  borrowing  to  a 
larger  or  smaller  extent.  If  these  debts  were  not  liquidated 
within  the  reign  they  were  usually  honored  by  the  succeeding 
monarch.  Fortunately  for  the  lenders  there  was  a  supersti- 
tion that  until  the  debts  of  the  deceased  were  paid  his  soul 
72] 


would  remain  in  purgatory.     Therefore  It  was  a  filial  duty 
for  a  son  to  provide  for  his  father's  obligations. 

Security  Given 

These  loans  were  sometimes  raised  upon  the  security  of 
the  customs.  Sometimes  the  customs  were  "farmed"  or 
sold  to  foreign  money  lenders  for  a  lump  sum  or  for  an  agreed 
periodical  payment.  The  farmer,  as  his  profit,  retained  any 
amount  collected  above  the  agreed  payment. 

Toward  the  end  of  the  reign  of  the  fifth  Henry,  we  find  a 
new  precedent  being  established  in  regard  to  Crown  debts. 
This  occurred  in  1421,  upon  the  return  of  the  King  from  a 
successful  campaign  against  the  French.     The  King  had  in- 
curred heavy  debts  for  the  payment  of  which  Parliament 
authorized  security  to  be  given  in  the  form  of  letters  patent 
to  the  lenders  that  they  would  be  paid  out  of  the  first  produce 
of  a  subsidy,  a  new  tax  of  the  nature  of  an  income  tax,  which 
was  granted  at  the  same  time  and  which  we  have  already 
described.     The  fact  that  this  tax  did  not  prove  to  be  suffi- 
cient for  the  purpose  and  thW  in  the  end  the  King  was  com- 
pelled to  pledge  the  royal  crown  and  jewels  to  make  up  the 
deficiency  does  not  alter  the  significance  of  this  action. 

Repudiation  of  Debts  by  Henry  VIII 

Henry  VIII,  among  other  infractions  of  the  laws  of  God 
and  the  rights  of  his  subjects  with  which  he  was  justly  charge- 
able, was  also  guilty  of  repudiating  his  debts.  The  Parlia- 
ment of  1525  which  impeached  Wolsey  passed  an  extra- 
ordinary statute  wherein  "they  do,  for  themselves  and  all 
the  whole  body  of  the  realm  which  they  represent,  freely, 
liberally  and  absolutely,  give  and  grant  unto  the  King's 
highness,  by  authority  of  this  present  Parliament,  all  and 


'KT 


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[75 


every  sum  and  sums  of  money  which  to  them  and  every 
of  them,  is,  ought  or  might  be  due,  by  reason  of  any  money 
or  of  any  other  thing,  to  his  grace  at  any  time  heretofore  ad- 
vanced  or  paid  by  way  of  trust  or  loan,  either  upon  any  letter 
or  letters  under  the  King's  privy  seal,  general  or  particular, 
letter  missive,  promise,  bond,  or  obligation   of  repayment 
or  by  any  taxation  or  other  assessing,  by  virtue  of  any  com- 
mission or  commissions,  or  by  any  other  mean  or  means, 
whatever  it  be,  heretofore  passed  for  that  purpose/'     This 
action  naturally  excited  much  resentment  and  worked  hard- 
ship to  many,  as  it  converted  loans  into  taxes  because  the 
money,   the    repayment  of  which   was   refused,   was    thus 
practically   extorted   from   the  lenders,   exactly   as   though 
originally  taken  in  the  form  of  taxes.     On  the  other  hand, 
there  were  many  who  were  pleased  to  see  Wolsey's  friends,' 
for  they  were   the   principal   creditors,   amerced,   and   the 
King's  debts  annihilated.  The  friends  of  the  people  were 
glad  that  a  mode  of  supply  so  dangerous  to  public  liberty 
should   be  discredited.     This  bad   precedent  was  followed 
again  in  1544,  when  a  similar  act  was  passed  releasing  the 
King  from  all  money  borrowed  since  1542,  and,  moreover, 
requiring  those  who  had  received  any  payments  on  account 
of  such  loans  to  refund  the  money  to  the  Treasury. 

Compulsive  Loans 

In  marked  contrast  to  the  dishonest  action  of  Henry  VIII 
toward  his  creditors  was  that  of  his  daughter  Queen  Elizabeth, 
who  assumed  and  paid  off  a  large  accumulation  of  debts  from' 
his  reign  and  those  of  her  brother  and  sister,  Edward  VI  and 
Mary.  Even  Elizabeth  continued  a  practise,  of  which  many 
examples  had  been  given  by  her  predecessors,  of  compelling 
loans  from  unwilling  subjects  on  pain  of  imprisonment*  As 


far  back  as  the  reign  of  Richard  II  the  prerogative  of  exacting 
loans  had  been  recognized  by  Parliament.  As  on  loans  of 
this  character,  no  interest  was  paid  they  worked  great  hard- 
ships to  the  lenders,  even  when  a  conscientious  sovereign, 
such  as  Elizabeth,  finally  paid  them.  What  course  a  different 
type  of  sovereign  could  take  we  have   already  seen. 

Foreign  Loans 

In  the  reigns  of  Edward  VI  and  of  Mary  it  became  a 
usual  practise  to  negotiate  loans  on  the  Continent,  especially 
in  Antwerp  and  other  Flemish  cities.  As  high  as  14  per  cent, 
interest  was  paid  for  such  loans. 

Elizabeth  had  excellent  credit  in  Hamburgh,  Cologne  and 
Antwerp  where  she  was  able  to  borrow  at  from  10  per  cent,  to 
12  per  cent,  interest,  although  she  was  in  some  cases  obliged 
to  furnish  the  additional  security  of  the  City  of  London. 
Finally  by  frugality  and  good  management  she  procured  the 
money  at  home  to  entirely  liquidate  her  foreign  debt. 

Stop  of  the  Exchequer 

The  Stuarts  were  also  heavy  borrowers,  while  to  the  dis- 
credit of  Charles  II  is  the  fact  that  in  1672  he  stopped  the 
repayment  of  loans  made  by  the  Goldsmiths  to  the  Ex- 
chequer. He  thus  tied  up  their  resources  and  ruined  many 
of  them  and,  in  turn,  their  clients  whose  bankers  they  were. 
This  debt  was  finally  compromised  late  in  the  reign  of  Will- 
iam III  at  fifty  cents  on  the  dollar.  This  is  the  famous 
"Stop  of  the  Exchequer." 

All  in  all,  the  history  of  Crown  borrowing  is  not  a  very 
creditable  one.  It  should  be  borne  in  mind  that  in  these 
early  days  there  was  no  such  thing  as  a  national  debt.  The 
lenders  dealt  with  the  King  very  much  as  they  would  with  a 


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private  individual.  As,  for  a  large  part  of  this  period,  the 
payment  of  interest  was  regarded  as  an  irreligious  act,  many 
subterfuges  were  resorted  to  in  order  that  the  lender  might 
be  compensated  for  his  risk  and  the  use  of  his  capital.  One 
arrangement  was  that  a  charge  might  be  made  for  delayed 
payments;  therefore  it  was  customary  to  allow  a  loan  to 
mature  and  then  to  run  along  for  a  longer  or  shorter  period 
thereafter.  The  money  lenders  sometimes  received  a  per- 
centage on  the  taxes  collected  by  acting  as  farmers  of  the 
revenue  as  already  explained.  Sometimes  the  lenders  were 
rewarded  with  gifts  of  titles,  or  lands  or  jewels. 


Chapter  XII 

Constitutional  Government  Developed  by 

Control  of  Purse 

(1066-1688) 

ENGLAND'S   present    democratic    form   of  government 
has  been  developed  from  the  autocracy  of  the  Middle 
ages  by  a  gradual  process  of  evolution. 

The  Plantagenets 

Magna  Charta  extorted  by  the  barons  from  King  John  in 
1 21 5  remedied  certain  feudal  abuses  in  the  matters  of  pur- 
veyance, relief,  wardship  and  marriage  and  in  particular 
admitted  the  right  of  the  nation  to  ordain  taxation  and 
defined  the  way  in  which  its  consent  was  to  be  given. 

Before  1295  when  arranging  for  grants  it  was  customary 
for  the  King  to  deal  separately  with  the  clergy  and  the  barons. 
In  this  year,  in  the  reign  of  Edward  I,  a  transition  which  had 
been  gradually  taking  place  since  1282  took  fixed  form  and 
the  Commons  were  admitted  to  a  share  of  the  taxing  power. 
The  three  estates  acted  separately  and  made  grants  of  vary- 
ing amounts,  but  they  took  action  simultaneously  at  a  com- 
mon place  of  meeting.  The  year  1303  is  memorable  in  com- 
mercial as  well  as  constitutional  history.  It  was  in  this  year 
that  the  Charta  Mercatoria  was  granted.  This  has  been 
called  the  Magna  Charta  of  Commerce.  By  its  terms  the 
ports,  cities  and  towns  of  England  were  opened  for  wholesale 
traffic  to  foreign  merchants. 

The  codification  of  the  laws  under  this  King  and  the  revi- 

[77 


f 


78] 


baI^kers  trust  company 


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[79 


■ 


sion  of  the  charters  all  tended  to  strengthen  the  position  of 
the  people. 

The   necessities   of  Edward    III    and   the   weakness   of 
Richard  II  still  more  strengthened  the  position  of  the  people, 
so  that  they  did  not  hesitate  to  depose  Richard  in  favor  of  a 
king  who  it  was  thought  would  reign  more  equitably,  but 
while  conditions  then  were  not  dissimilar  to  those  subse- 
quently, at  the  time  when  Charles  II  was  deposed,  the  people 
were  not  yet  ready  to  take  advantage  of  the  progress  they 
had  made.     The  King  was  still  an  autocrat  and  would  be 
for  several  centuries,  but  the  right  of  the  taxpayer  to  be  heard 
before  he  backed   up  the  King's  projects  with  his  aid  was 
coming  to  be  fully  recognized,  although  the  King  constantly 
endeavored  to  evade  that  condition,  only  to  be  brought  to 
book  again  when  some  critical  situation,  such  as  a  foreign  war, 
requiring  large   contributions,   should    arise.     But   it   took 
several  centuries  more  of  experience  before  the  people  were 
prepared  for  self-government. 

Lancaster  and  York 

The  six  reigns  of  the  Lancastrian  and  Yorkist  kings  cover- 
ing the  greater  part  of  the  fifteenth  century  (1399  to  1485) 
were  years  of  foreign  wars  and  domestic  strife.  During  the 
reigns  of  the  Lancastrian  Henrys,  constitutional  forms  were 
well  observed.  This  period  of  about  sixty  years  was  one  of 
poverty  on  the  part  of  the  Crown  when  large  dependence 
must  be  placed  upon  parliamentary  grants.  On  this  account 
Parliament  became  much  bolder  than  in  previous  reigns. 
It  did  not  hesitate  to  interfere  with  the  management  of  the 
King's  household,  by  urging  economy  in  household  expendi- 
tures and  limiting  the  purposes  for  which  such  expenditures 
might  be  made. 


It  was  during  the  reign  of  Henry  IV  that  the  right  of  the 
Commons  to  initiate  money  legislation  was  brought  to  the 
fore  and  the  precedent  in  that  respect  more  firmly  established. 

The  Tudors 

The  Tudor  period  (1485-1603)  was  one  of  reaction.  The 
people  to  a  great  extent  lost  control  of  the  Crown.  For 
the  most  part  pariiamentary  forms  were  observed  and  the 
checks  to  royal  authority  which  had  been  gradually  developed 
from  the  time  of  Norman  William  were  not  directly  contra- 
vened but  more  than  once  they  were  evaded. 

The  customary  grants  of  revenue  by  votes  of  Parliament 
were  made  at  irregular  periods  and  it  is  known  that  the  reve- 
nue from  such  sources  was  relatively  unimportant  in  com- 
parison with  that  derived  from  the  customs,  from  the  King's 
prerogative  and  from  compulsive  and  voluntary  loans,  and 
during  the  reigns  of  Henry  VIII  and  Edward  VI  from  the 
debasement  of  the  coinage  and  the  sales  of  the  confiscated 
church  lands.  In  other  words,  the  sovereigns  of  this  period 
found  ways  and  means  to  get  along  with  small  parliamentary 
grants  and  therefore  could  be  as  autocratic  as  their  fellow 
monarchs  across  seas  while  yet  keeping  up  the  appearance  of 
subserviency  to  old  constitutional  forms. 

The  Stuarts 

The  period  of  English  history  lying  between  the  reign  of 
Elizabeth  and  the  Revolution  (1603-1688)  is  distinctive  as 
the  one  in  which  the  powers  of  sovereignty  are  finally  trans- 
ferred from  the  Crown  to  Parliament.  After  the  close  of  the 
seventeenth  century  we  no  longer  speak  of  Crown  finance 
but  of  national  finance.  While  all  other  peoples,  with  the 
exception  only  of  the  Swiss,  were  giving  up  all  rights  of  citizen- 


8o] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[8i 


,;' 


ship  to  autocrats  of  the  most  absolute  type,  England  was 
evolving  a  system  of  government  which  combined  "freedom 
with  efficiency,  and  local  rights  with  national  union." 

These  changes  did  not  take  place  hastily— in  fact,  English 
life  in  all  departments  of  activity  was  essentially  the  same, 
so  far  as  surface  indications  went,  in  the  times  of  the  first 
Scotch  kings,  as  it  was  during  Elizabethan  times.  Political 
events  of  great  importance  were  gradually  shaping  men's 
minds  for  the  radical  changes  of  the  latter  part  of  the  period— 
from  1640  on. 

The  Stuarts  had  all  the  Tudor  love  of  power  and  belief 
m  the  inherent  rights  of  monarchs  to  rule,  without  the  Tudor 
ability  to  manage  their  subjects. 

^     James  I  did  not  know  anything,  either  in  the  spirit  or  in 
in  the  letter,  about  the  laws  and  liberties  peculiar  to  England. 
Constitutional  custom  and  parliamentary  privilege  meant 
nothing  to  him  until  late  in  life  and  then  he  looked  upon  them 
solely  as  an  impediment  to  a  benevolent  government.    Eliza- 
beth by  her  economies  had  put  the  finances  of  the  nation  on 
a  sound  basis  and  had  left  the  Treasury  in  a  flourishing  con- 
dition.     However,  James  spent  money  so  freely  that  he  was 
in  constant  need  and  thus  was  continually  in  opposition  to 
Pariiament.     Early  in  his  reign  he  revived  the  feudal  rights 
of  the  King  to  collect  revenue  independent  of  pariiamentary 
grants.     A  vigorous  controversy  arose  over  these  effx)rts  of 
the  King.     A  compromise  was  proposed  in  the  form  of  a  con- 
tract to  be  entered  into  by  the  Crown  with  Pariiament, 
whereby  in  consideration  of  a  grant  for  life  of  £200,000  a 
year  the  King  would  surrender  all  sources  of  revenue  due  to 
his  prerogative.     The  consummation  of  this  plan  was  pre- 
vented  by  religious  controversies  which  led  to  the  dissolution 
of  Parliament  in  February,  1611. 


From  this  time  until  January,  1621,  a  period  often  years, 
the  King  reigned  without  parliamentary  co-operation  except 
for  a  two  months' meeting  of  the  "Addled  Parliament  "in  1614. 
Court  intrigue  dominated  public  affairs  for  this  decade. 

Finally,  the  approach  of  war  abroad  made  it  necessary  in 
1 62 1  to  call  a  Parliament  and  for  a  few  years  the  parliamen- 
tary side  was  temporarily  in  the  ascendency. 

Charles  I  succeeded  to  the  throne  in  1625  and  for  eleven 
years  conducted  the  affairs  of  the  nation  without  the  aid  or 
interference  of  Parliament.  Then  the  pent-up  forces  of 
democracy  broke  loose,  assuring  to  England  and  the  English- 
speaking  world  the  ascendency  of  the  principles  of  representa- 
tive government. 

Commonwealth  and  Protectorate 

The  period  from  the  death  of  Charles  I  to  the  accession 
of  Charles  II  (1649-1659)  is  called  by  some  historians  the 
period  of  the  Republic.  Nothing  could  be  further  from  the 
modern  conception  of  a  republican  form  of  government — 
that  is,  of  a  government  founded  upon  representation.  The 
government  of  Cromwell  was  dependent  for  its  power 
upon  his  army  and  he  dare  not  appeal  to  the  voters  except 
in  a  partial  and  negative  way.  As  Trevelyan  says:  "When 
the  roundheads  in  the  name  of  the  people  had  seized  power 
they  found  not  only  the  active  champions  of  democracy 
but  the  people  itself— whatever  definition  be  given  to  that 
term — bitterly  hostile  to  their  rule." 

Nevertheless  the  period  was  one  of  active  training  of  the 
people  for  self-rule.  The  naval  supremacy  of  Great  Britain 
was  then  firmly  established  and  the  path  of  Empire  blazed 
and  its  foundation  laid. 

Public  discussion  which  under  James  had  been  frowned 


V  :    'I  I 


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[83 


upon  and  under  Charles  actively  repressed  was  free  and 
open  after  the  war  broke  out  between  King  and  Parlia- 
ment. The  period  was  one  which  compelled  men  to  think 
hard  and  to  take  definite  positions,  for  which  they  must  be 
prepared  to  give  their  reasons  and  stake  their  lives  and  for- 
tunes. 

Under  the  Commonwealth  and  the  Protectorate  the  cost 
of  government  was  the  highest  which  the  country  had  ever 
known  However,  this  increased  cost  was  part  of  the  disci- 
pline which  the  country  needed  to  prepare  it  eventually  for 
self-government.  Still  this  does  not  change  the  fact  that 
the  Protectorate  was  thereby  brought  to  its  end  and  the 
restoration  of  the  monarchy  made  popular. 

The  pressure  of  taxes,  the  general  depression  of  trade, 
the  poverty  and  suffering  of  the  working  classes  and  the  bad 
state  of  credit  all  combined  to  make  the  people  ready  for  a 
change.  So,  when  the  guiding  hand  of  the  great  Cromwell 
was  removed  by  death,  his  government  easily  disintegrated 
and  once  more  a  king  took  his  place  at  the  head  of  affairs. 

Charles  II 

The  restoration  of  the  monarchy  seemed  to  be  necessary 
to  prevent  civrl  war.  It  was  the  only  form  of  government 
upon  which  all  parties  could  agree.  The  country  was  to 
endure  for  almost  a  generation  the  rule  of  the  profligate 
Charles  II  and  the  bigoted  James  II.  During  this  period  the 
forces  making  for  constitutional  government  were  still  fur- 
ther developing  to  come  to  their  fruirion  in  1688  through  a 
nnal  revolution. 

Now  that  government  had  resumed  its  normal  course  the 
traditional  policy  of  the  nation  against  the  maintenance  of  a 
standing  army  led,  as  a  first  step,  to  the  disbandment  of  the 


army.  As  the  pay  of  the  soldiers  was  much  in  arrears  it  was 
necessary  to  raise  at  once  for  this  purpose  the  sum  of  around 
£400,000.  This  was  accomplished  by  the  imposition  of  a 
graduated  poll-tax,  said  to  have  been  up  to  that  time  "the 
greatest  poll-tax,  and  most  particular,  that  had  been  known." 
No  one  was  overlooked,  from  the  nobility  to  the  humblest 
citizen.  The  charges  ranged  from  £ioo  for  a  duke  to  six- 
pence for  "every  person  not  rated,  nor  receiving  alms,  above 
sixteen  years  of  age."  By  reading  this  Act  one  may  cause 
to  pass  in  review  representatives  of  every  class  in  the  social 
life  of  the  time — dukes,  marquises,  earls,  viscounts,  barons, 
baronets,  knights,  sergeants-at-law,  esquires,  parsons,  vicars, 
doctors  of  the  civil  or  canon  law,  doctors  of  physick;  mayors, 
sheriffs,  aldermen,  town  clerks;  masters  and  other  officers 
of  the  livery  companies;  dyers,  brewers,  leather-followers, 
girdlers,  apothecaries,  tallow-chandlers  and  others.  Then 
there  were  the  barber-surgeons,  the  white-bakers,  the  brown- 
bakers,  butchers,  carpenters  and  other  tradesmen.  Then  a 
long  list  of  those  in  mechanical  pursuits  and  the  building 
trades.  The  courts*  officers  and  clerks  and  the  officers  and 
clerks  of  the  other  departments  of  the  Government  all  had  to 
pay,  and  finally,  to  sweep  in  any  who  might  have  been  over- 
looked, "everyone  that  could  spend,  in  land,  lease,  moneys  or 
stock,  £100  per  annum,  40  shillings,  and  so  on  for  a  greater 
or  less  estate."  The  produce  of  this  tax  is  not  reported  but 
it  is  recorded  that  the  much  dreaded  army  merged  with  the 
rest  of  the  population  and  was  quickly  a  thing  of  the  past. 
The  King  retained  about  5,000  men  under  arms,  thus  laying 
the  foundation  for  a  moderate  standing  army  such  as  England 
has  since  then  maintained.  Pending  the  collection  of  this 
tax  and  of  a  special  assessment  on  lands  and  movables, 
arrangements  were  made  with  the  city  of  London  for  a  loan. 


84 1 


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!i 


J'l* 


Charles  was  successful  in  inducing  Parliament  to  settle  a 
permanent  revenue  upon  him  of  £1,200,000  a  year.     This 
was  something  many  times  before  attempted  but  now  for  the 
first  time  arranged.     The  King  was  to  surrender  all  revenues 
from  his  prerogative,  such  as  wardships,  marriages,  purvey- 
ance, pre-emption  and  the  like,  from  which  a  considerable 
portion  of  the  Crown  income  had  previously  been  obtained. 
On  the  other  hand.  Parliament  made  the  new  appropriation  a 
special  charge  upon  an  excise  tax  upon  liquors,  including  not 
only  beer,  ale,  cyder,  strong-water,  but  also  vinegar  and  even 
cofFee,  chocolate,  sherbet  and  tea.     The  income  from  this 
source  not  proving  to  be  sufficient  to  produce  the  amount 
appropriated,  it  was  later  found  necessary  to  supplement  it  by 
other  taxes. 

The  remainder  of  this  reign  was  marked  by  continued 
clashes  between  King  and  Parliament.  Large  supplies  were 
required  for  the  conduct  of  wars  with  the  Dutch. 

For  the  expenses  of  the  first  war  Parliament  readily  voted 
the  requisite  amount.  Two  notable  departures  were  made 
from  former  usage.  The  old  method  of  raising  money  by 
subsidies  of  tenths  and  fifteenths  was  abandoned  forever 
and  the  mode  of  monthly  assessments  introduced  during 
the  Civil  War  adopted  instead.  The  clergy  who  used  to 
tax  themselves  in  convocation  now  consented  to  be  taxed  by 
Parliament  in  the  same  manner  as  the  laity.  In  return  they 
obtained  the  right  of  voting  at  elections. 

This  war  with  its  disgraceful  ending,  the  fire  of  London 
and  the  plague,  all  combined  to  make  the  people  restive  under 
the  necessarily  heavy  taxation  while  their  incomes  were 
seriously  curtailed. 

So,  when  Charles  in  1672  secretly  began  another  war 
against  Holland,  without  the  consent  of  Parliament,  he  ob- 


ENGLISH  PUBLIC  FINANCE 


[8s 


tained  the  cash  resources  required  by  confiscating  the  bal- 
ances of  the  merchants  loaned  to  the  Exchequer.  This  was 
the  "Stop  of  the  Exchequer**  already  considered.  This  is  the 
last  instance  in  English  history  of  such  a  proceeding,  just  as 
the  Stuarts  were  the  last  of  the  autocratic  sovereigns.  Par- 
liament finally  forced  peace  in  1674  ^Y  refusing  to  give 
further  supplies.  Just  as  it  seemed  as  if  Parliament  had  the 
King  in  a  position  where  he  must  abandon  his  autocratic 
methods  he  succeeded  in  obtaining  a  loan  from  Louis  of 
France  and  Parliament  did  not  meet  again  during  the  last 
four  years  of  his  reign,  which  ended  in  February,  1685. 

James  II 

Upon  his  accession  James  II  was  apparently  one  of  the 
most  autocratic  of  rulers.  The  people  were  subservient  and 
Parliament  voted  him  large  supplies  for  life.  He  had  a  large 
army,  although  it  was  not  well  disciplined  and  was  not  in 
sympathy  with  his  religious  views.  However,  while  the 
nation  was  much  divided  on  the  subject  of  religion  and  one 
Protestant  sect  was  cruelly  treating  all  the  others,  they  were 
a  unit  in  opposing  his  desire  for  Catholic  supremacy.  Thus 
the  nation  was  prepared  to  take  the  stand  against  James 
which  was  involved  in  asking  William  the  Hollander  to  head 
an  armed  expedition  to  England.  And  so  with  the  flight  of 
James  to  France  ended  the  Stuart  dynasty  and  autocracy. 


ENGLISH  PUBLIC  FINANCE 


[87 


« 


Chapter  XIII 

England  After  the  Revolution  of  1688 

(1688-1920) 

n^HE  Revolution  of  1688  drew  a  sharp  line  between  old 
-^  England  and  an  England  in  which  new  conditions  were 
to  prevail.  In  politics,  in  its  economic  status,  in  its  outlook 
upon  the  rest  of  the  world  and  its  relations  therewith  the 
nation  was  to  experience  changes  of  the  greatest  importance 
to  the  welfare  of  its  people. 

The  history  of  this  new  England  naturally  divides  into 
three  epochal  periods.  First  we  have  a  century  and  a  third 
in  which  the  keynote  is  war— war  in  a  military  sense;  war  in 
an  economic  sense.  England  for  the  English  and  England 
against  the  world,  including  her  own  colonies  and  her  sister 
island  of  Ireland. 

The  dominating  note  of  the  next  century  is  peace,  accom- 
panied by  great  political,  industrial,  economic  and  social 
changes. 

Then  we  have  the  brief  climateric  period  of  the  recent 
war— a  period  when  England  nobly  and  voluntarily  supported 
by  all  of  her  Dominions  and  Dependencies;  joined  hands 
with  France,  Italy,  and  America,  to  save  from  destruction 
their  common  civilization. 

Origin  of  the  National  Debt 

The  great  financial  engines  which  provided  the  power  to 
make  this  victory  possible  had  their  genesis  during  the  closing 
years  of  the  seventeenth  century.  The  ideas  which  gave 
them  birth  were  probably  of  Dutch  origin,  brought  with  him 
861 


from  Holland  by  William  III.  These  were  public  borrow- 
ing and  banking.  Prior  to  1688  there  had  been  no  such 
thing  in  England  as  a  national  debt.  The  sovereigns  had 
frequently  borrowed  money  but  these  loans  were  transactions 
with  special  groups  of  moneyed  men  and  in  no  sense  borrow- 
ings of  a  national  character,  raised  on  a  systematic  basis. 
As  an  alien.  King  William  hesitated  to  burden  the  people  too 
heavily  with  taxation  and  therefore  to  meet  the  expense  of 
his  wars  resorted  to  borrowing  on  a  large  scale. 

The  Bank  of  England 

In  1694  the  Bank  of  England  was  incorporated. 

This  was  the  first  incorporated  banking  institution  in 
England.  Its  charter,  which  was  granted  July  24,  1694,  pro- 
vided that  in  exchange  for  a  loan  to  the  Exchequer  of  £1,200,- 
000  the  incorporators  might  deal  in  bullion  and  bills  of  ex- 
change, issue  notes  and  make  advances  on  merchandise.  It 
was  a  private  undertaking  and  so  remains  to  the  present  day. 
On  the  other  hand,  it  performs  important  public  functions, 
such  as  the  management  of  the  public  debt  and  finances. 
Its  history,  privileges  and  responsibilities  are  discussed  in 
detail  in  subsequent  pages. 

The  Exchequer y  or  Treasury ^  Bill 

The  first  Exchequer  bills  were  issued  in  1696.  As  origi- 
nally issued  they  were  a  form  of  Government  currency. 

Their  subsequent  use  has  been  to  bridge  over  the  period 
between  expenditure  and  the  receipt  of  income  from  taxa- 
tion or  from  long  time  loans.  They  have  served  as  the 
shuttle  which  wove  into  the  fabric  of  Government  resources 
the  floating  capital  of  the  realm.  Since  1877  Treasury  Bills 
which  perform  the  same  functions  have  largely  taken  their 


III? 


Hi 


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88] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[89 


I! 


i! 


place.  The  principal  difFerence  between  these  two  classes  of 
bills  IS  that  the  Exchequer  bills  are  paid  with  accrued  interest 
while  Treasury  bills  are  issued  at  a  discount  and  paid  ofF  at 
par. 

T/ie  Income  Tax 

Another  mighty  engine  of  public  finance,  the  income  tax 
in  Its  modern  form,  was  not  provided  until  late  in  the  next 
century.     This  tax  was  first  levied  in  1799  at  the  instance  of 
William  Pitt,  the  younger,  as  an  aid  in  the  financing  of  the  first 
part  of  the  Great  French  War.     It  was  levied  at  the  rate  of 
10  per  cent,  on  all  incomes  of  two  hundred  pounds  and  above. 
In  the  first  full  year  of  its  operation  it  provided  about  four  and 
a  half  million.     Compare  this,   even   after  making  liberal 
allowance  for  the  greater  purchasing  power  of  the  £  sterling 
in  Pitt's  time,  with  the  return  of  the  last  fiscal  year  (1919- 
1920)  of  nearly  three  hundred  and  sixty  million,  or,  with 
excess  profits  tax  added,  some  six  hundred  and  fifty  million. 
Its  prototype,  first  levied  in  the  reign  of  Richard  I,  may  have 
yielded  forty  thousand  pounds— exact  figures  are  not  avail- 
able. 

Joint-Stock  Banking 

Then,  in  this  survey,  we  must  not  overiook  the  importance 
of  the  introduction  of  joint-stock  banking  in  England  in  1826, 
and  the  extension  of  the  privileges  of  such  banks  to  the  city 
of  London  in  1833.  The  marshalling  of  the  credit  resources 
of  the  worid  through  the  agency  of  these  banks  and  of  the 
great  acceptance  houses  made  England  the  financial  clearing 
house  for  the  worid's  trade.  Thus  there  were  concentrated 
in  London  great  reservoirs  of  credit  which  made* it  possible 
for  England  to  carry  so  heavy  a  part  of  the  financial  burden 


of  the  recent  war.  The  combined  financial  resources  of 
England  and  America  mobilized  through  their  private  cor- 
porate banks  and  their  respective  semi-state  banks,  the  Bank 
of  England  and  the  Federal  Reserve  System,  provided  the 
credit  resources  without  the  use  of  which  the  war  could  not 
have  been  fought  to  its  successful  climax. 

Public  Expenditure 

We  may  now  turn  to  a  consideration  of  the  uses  to  which 
moneys  were  put  which  were  made  available  by  this  financial 
machinery  of  taxation,  borrowing  and  banking.  We  find  in 
the  requirements  of  war  the  greatest  cause  of  the  creation 
and  growth  of  public  debt.  War,  the  preparation  for  war, 
the  aftermath  of  war  in  the  form  of  pensions  and  the  interest 
upon  the  public  debt,  accounts  for  over  85  per  cent,  of  the 
total  expenditure  of  the  nation  from  the  Revolution  until 
the  present  time.  In  this  connection  the  tables  of  expendi- 
ture and  of  income  from  1688-1920  printed  with  Chapter 
XXV  will  be  found  worthy  of  special  study. 

The  Tariff 

Finally,  we  may  consider  the  use  of  the  taxing  power  for 
other  purposes  than  to  produce  income.  Until  1845  England 
possessed  a  highly  protective  tariff,  designed  to  promote  the 
interests  of  the  land  owners  and  the  manufacturers.  Up  to 
that  time  the  customs  tariffs  were  devised  both  with  a  view 
to  giving  this  protection  and  to  obtaining  revenue.  This 
was  also  true  of  some  internal  taxtion.  In  1846,  largely  as  a 
sequence  to  the  Irish  famine  of  1845,  the  corn  laws  were  re- 
pealed. Thereafter  the  other  protective  duties  were  gradu- 
ally removed  so  that,  since  1866,  England  has  enjoyed  abso- 
lute free  trade. 


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BANKERS  TRUST  COMPANY 


England  in  igi4 

At  the  time  of  the  outbreak  of  the  recent  war  England 
was  the  richest  of  the  nations,  so  far  as  developed  resources 
were  concerned.  Her  commerce  was  worldwide,  her  manu- 
factures went  everywhere,  carried  for  the  most  part  by  her 
own  ships.  These  also  carried  a  large  percentage  of  the 
goods  of  other  nations,  especially  foodstufFs  for  home  con- 
sumption and  the  raw  materials  of  manufacture  for  which 
England  is  dependent  upon  the  rest  of  the  worid.  England 
in  1914  was  the  worid's  banker  and  her  capital  was  invested 
in  the  promotion  of  industry  and  transportation  not  only  at 
home  and  in  her  own  colonial  possessions,  but  in  many  other 
countries,  especially  in  the  Americas. 

The  Future? 

The  recent  war  has  brought  about  important  changes  in 
all  of  these  relations.  It  is  too  soon  as  yet  to  determine  to 
what  these  changes  will  lead.  Much  depends  upon  the 
English  workingman  and  workingwoman.  By  the  progress 
of  events  he  and  she  have  now  largely  devolved  upon  them 
the  decision  as  to  what  shall  be  the  future  historv  of  the 
nation.  J^or  good  or  ill  over  the  centuries,  slowly,  almost 
impercepribly  at  first,  but  finally  with  great  rapidity  within 
the  last  fifty  years,  this  power  has  come  to  them. 


Chapter  XIV 

War  and  Debt 

(1688-1817) 

THE  period  of  English  history  extending  from  the  acces- 
sion of  William  III  to  the  close  of  the  Napoleonic  wars 
was  one  marked  by  a  succession  of  wars  and  a  steady  growth 
of  debt. 

In  1688  the  only  debt  of  the  nation  consisted  of  some 
£384,000  of  temporary  obligations  for  arrears  due  to  the 
army  and  for  other  demands  arising  from  the  Revolution. 
There  was  also  in  litigation  the  claim  of  the  Goldsmiths  for 
reimbursement  of  the  amounts  seized  from  them  by  Charles  II 
at  the  time  of  the  **Stop  of  the  Exchequer**  in  1672.  This 
claim  was  later  adjudicated  at  £664,263.  So  the  entire 
debt  as  of  1688  was  a  little  over  one  million  pounds. 

In  the  century  and  a  third  lying  between  this  date  and 
18 17,  when  the  expenses  of  the  Great  French  War  were 
finally  determined,  the  bulk  of  the  public  debt  of  England 
as  it  stood  prior  to  the  recent  world  war  was  created.  The 
wars  of  William  III  were  the  cause  of  £18  million  of  debt 
and  the  wars  of  Anne  of  £33  million  more.  The  Spanish 
Right  of  Search  War  and  the  War  of  the  Austrian  Succession 
piled  on  another  £3 1  million.  The  Seven  Years  War  added 
£57  million,  the  American  War  £116  million,  and  the  Great 
French  Wars  £612  million.  The  total  debt  at  the  end  of  the 
period,  allowing  for  some  reductions  during  the  intervals  of 
peace  lying  between  the  different  wars,  was  £850  million. , 

The  table  on  page  93  summarizes  these  data.  It  also 
affords  comparisons  not  only  of  one  period  with  another, 

[91 


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92] 


BANKERS  TRUST  COMPANY 


but  also  with  the  national  wealth.  It  is  interesting  to  note 
how  the  growth  in  population  and  in  wealth  kept  pace  to  a 
measureable  extent  with  the  growth  of  the  debt.  This  was 
especially  the  case  during  the  last  fifty  years  of  the  period. 
A  table  giving  similar  comparisons  of  the  debt  charge  for 
the  same  periods  with  the  national  income  may  be  found 
on  page  134. 

PuMc  Finance  in  the  Reign  of  William  III 

The  reign  of  William  III  was  marked  by  active  warfare 
at  home  and  abroad.  At  home  there  was  the  cruel  war  for 
the  reduction  of  Ireland.  Abroad  there  was  constant 
warfare  with  France  which  had  espoused  the  cause  of  the 
deposed  King,  James  II,  and  also  was  at  war  with  England's 
ally,  Holland. 

The  expenditures  during  the  reign  of  James,  which  had 
been  called  "crushing,''  had  averaged  £2,168,000  a  year. 
They  mounted  to  an  average  of  nearly  £5  million  in  William's 
reign.  This  state  of  affairs  constituted  a  serious  menace  to 
the  stability  of  the  new  government,  not  altogether  removed 
by  the  final  victory.  To  cope  with  such  a  difficulty  William 
had  the  advantage  of  the  experience  of  the  Dutch  in  financial 
matters.  In  the  Bank  of  Amsterdam,  established  in  1609, 
the  Dutch  possessed  one  of  the  three  important  banks  of  the 
time.  England  was  rich  and  had  come  to  understand  and 
to  engage  actively  in  company  promotion  and  in  stock  spec- 
ulation. Domestic  business  was  active,  much  capital 
having  been  invested  during  the  war  in  the  manufacture  of 
goods  of  a  class  formerly  imported  from  France.  There  had 
also  been  an  active  development  of  mining  ventures,  water 
supply  companies,  munitions  factories  and  other  undertak- 
ings. 


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As  the  war  progressed,  French  commerce  was  driven  off 
the  seas.  England  was  rapidly  becoming  the  greatest  com- 
mercial country  in  Europe. 

TAe  Bank  of  England  Foundea 

The  requirements  of  the  State  and  of  business  both  called 
for  better  banking  facilities  than  were  offered  by  the  Gold- 
smiths. The  time  was  ripe  for  the  introduction  of  corporate 
banking.  Therefore,  when  a  plan  was  brought  forward  for 
organizing  a  bank  which  would  make  an  immediate  large 
advance  of  capital  to  the  State  and  which  would  stand  ready 
to  finance  the  growing  requirements  of  the  Government,  and 
also  of  the  commercial  classes,  it  found  a  ready  response, 
and  in  1694  ^he  Bank  of  England  was  organized. 

The  National  Debt  Inaugurated 

Another  idea  which  William  brought  with  him  from  Hol- 
land was  that  of  national  borrowing.  The  new  Government 
hesitated  to  place  upon  the  people  too  heavy  a  burden  of 
taxation.  It  was  also  thought  to  be  a  good  policy  to  have 
the  moneyed  classes  tied  to  the  Government  by  direct  invest- 
ment in  the  public  funds. 

It  is  an  interesting  fact  that  the  methods  of  public  borrow- 
ing introduced  during  the  reign  of  William  III  comprised 
practically  every  method  since  adopted.  This  indicates  at 
once  the  resourcefulness  of  William's  finance  ministers  and 
the  conservatism  of  the  English  people.  Then,  as  now,  the 
debt  assumed  two  principal  forms — funded  and  unfunded. 
According  to  English  Finance  AccountSy  the  funded  debt  con- 
sists only  of  the  perpetual  debt,  such  as  the  debts  due  to  the 
Bank  of  England  and  the  Bank  of  Ireland  and  the  Consols. 
The  unfunded  debt  is  debt  of  a  temporary  nature  and  debt 


repayable  at  the  end  of  fixed  terms.  As  some  of  the  obliga- 
tions under  this  latter  head  are  not  repayable  for  many  years 
the  division  based  on  established  usage  has  become  somewhat 
illogical. 

We  will  now  consider  the  early  forms  of  unfunded  and 
funded  debt. 


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Chapter  XV 

Early  Forms  of  the  Unfunded  Debt 

(1688-1707) 

npHE  unfunded  debt  of  this  period  consisted  of  tallies,  navy 
^  bills  and  Exchequer  bills.  In  temporary  advances  by  the 
Bank — as  for  convenience  we  will  hereafter  designate  the  Bank 
of  England— we  have  the  precursor  of  the  "ways  and  means 
advances''  of  present-day  treasury  statements. 

Tallies 

Prior  to  the  Revolution  the  form  which  the  obligations 
of  the  Crown  usually  took  was  that  of  loans  upon  "tallies" — 
a  form  of  wooden  stick  given  as  a  receipt  for  money  payments. 
The  tally  will  be  found  described  in  the  chapter  on  the 
Exchequer. 

The  Exchequer  would  at  times  find  it  inconvenient  to  meet 
its  payments  in  cash.  It  would  then  give  to  the  creditor 
tallies  or  receipts  issued  in  anticipation  of  revenue.  These 
were  known  as  "tallies  of  assignment/'  because  a  definite 
source  of  revenue  was  set  aside  for  their  payment.  They 
were  always  accompanied  by  an  Exchequer  order  entitling 
the  holder  to  the  payment  of  the  amount  at  a  set  date  in 
the  future. 

These  Exchequer  orders  were  issued  in  negotiable  form, 
being  transferable  by  endorsement.  They  sometimes  bore 
interest. 

Again,  tallies  with  assignable  orders  of  repayment  were 
given  in  acknowledgment  of  money  loans.  These  tallies  were 
called  "tallies  of  loan."    The  Exchequer  order  of  repayment 

96] 


ENGLISH  PUBLIC  FINANCE 


[97 


was  the  really  valuable  document.  It  was  written  on  parch- 
ment and  signed  by  the  high  Exchequer  and  Treasury  officials. 
These  orders  and  the  tallies  accompanying  them  came  in 
time  to  be  known  indifferently  as  "tallies,"  and  the  operation 
was  spoken  of  as  borrowing  on  tallies.  Following  is  a  copy 
of  such  a  document  of  the  time  of  Charles  II. 

EXCHEQUER  ORDER 
Reign  of  Charles  II 

Order  is  taken  by  us,  this day  of ,  by 

virtue  of  an  Act  intituled,  "An  Act  for  granting  a  Supply  to 
His  Majesty  of  Two  hundred  and  six  thousand,  foure  hundred 
sixty-two  pounds,  seaventeene  shillings  and  three  pence,  for 
paying  off  and  disbanding  the  Forces  raised  since  the  Nine 
and  twentyeth  of  September,  One  thousand  six  hundred  sea- 
venty  and  seaven,"  that  you  deliver  and  pay  of  such  of  His 
Majestye*s  treasure  as  remains  in  your  charge  of  the  summe 
of  Two  hundred  six  thousand  fower  hundred  sixty-two  pounds, 
seaventeene  shillings,  and  three  pence,  arising  by  virtue  of  the 

said  Act  unto or  his  assignes,  thesumme  of 

in  repayment  of  soe  much  money  lent  by  him  unto  his  Majestic 
upon  the  credit  of  the  said  summe  of  Two  hundred  six  thousand 
fower  hundred  sixtie-two  pounds,  seaventeene  shillings,  and 
three  pence,  and  paid  into  the  receipt  of  his  Majestie*s  Ex- 
chequer, the  said day  of ,  as  by  a  tally 

leavied  at  the  receipt  of  the  Exchequer,  bearing  date  the  same 
day,  appears,  together  with  the  interest  thereof,  at  the  rate  of 
eight  pounds  per  centum  per  annum,  at  the  end  of  every  three 
months,  until  the  repayment  of  the  principall;  and  these,  to- 
gether with  his  or  her  acquittance,  or  the  acquittance  of  his 
or  her  assignee  or  assignees,  shall  be  your  discharge  herein. 

The  first  loans  of  William  III  were  raised  in  the  usual  way 
by  tallies  of  loan  charged  on  and  in  anticipation  of  various 
duties.  The  amounts  required  were  so  large  that  they 
accumulated  more  rapidly  than  the  revenues  allocated  to 


I/' 


11 


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BANKERS  TRUST  COMPANY 


them  could  be  collected.  Then  the  Treasury  frequently  was 
not  in  funds  with  which  to  meet  a  given  series  of  tallies 
because  the  collections  were  smaller  than  the  charges. 
Thus  the  tallies  were  discredited  and  fell  to  a  heavy  discount. 
At  the  close  of  the  war  in  1696  the  total  deficiency  in  the 
funds  upon  which  the  tallies  outstanding  were  charged  was 
£5,160,000.  To  remedy  this  defect  in  the  system  Parliament 
swept  all  of  the  receipts  into  one  fund,  making  all  outstanding 
tallies  a  first  general  mortgage  thereon. 

The  debt  upon  tallies  of  loan  was  a  very  dangerous  form 
of  unfunded  debt.  As  these  loans  were  usually  made  only 
for  short  periods,  the  Treasury  was  under  the  necessity  of 
making  frequent  renewals.  These  renewals  were  apt  to  come 
at  inconvenient  times. 

Navy  and  Army  Supply  Bills 

The  records  show,  especially  in  the  case  of  tallies  of  antici- 
pation,  that  the  Army  and  Navy  paymasters  frequently  had 
to  submit  to  a  heavy  discount.  As  high  a  loss  as  25  per  cent. 
IS  known  to  have  been  sufl^ered  during  the  financial  distress  of 
1687.  In  the  following  year  the  Treasury  was  authorized  by 
Parliament  to  issue  these  tallies  at  10  per  cent,  discount  to 
those  who  would  receive  them  in  payment  for  navy  services. 
In  fact  it  was  especially  in  connection  with  navy  services  that 
such  depreciation  chiefly  occurred. 

The  navy  and  army  supply  bills,  as  these  obligations  came 
to  be  known  later  on,  were  put  on  a  sound  basis  in  1784  dur- 
ing the  Treasury  administration  of  the  younger  Pitt. 

The  Exchequer  Bill 

The  introduction  of  the  Exchequer  bill  in  1696  was  a  first 
step  toward  remedying  this  abuse,  although  it  was  not  until 


ENGLISH  PUBLIC  FINANCE 


[99 


175 1  that  they  entirely  supplanted  the  tallies.  They  were 
issued  in  the  first  instance  to  supply  a  temporary  need  for 
a  circulating  medium  while  the  coinage  was  in  process  of 
revision.  Bank  of  England  notes  were  not  issued  at  that 
time  in  smaller  denominations  than  twenty  pounds.  The 
Exchequer  bills  then  issued  amounted  to  only  £159,169,  but 
in  the  next  year  £1,500,000  were  issued  and  in  the  following 
year  £1,200,000  more.  They  were  issued  in  even  denomina- 
tions of  five  and  ten  pounds  and  to  such  public  creditors  as 
chose  to  receive  them.  There  was  no  compulsion.  They 
were  negotiable,  passing  by  endorsement.  They  bore  in- 
terest. They  were  receivable  by  the  Government  in  payment 
for  all  taxes,  except  the  land  tax,  and  when  received  could 
be  reissued.  Interest  lapsed  during  the  time  they  were  in 
the  Treasury.  When  the  bills  were  covered  with  endorse- 
ments they  were  held  in  the  Treasury  and  other  bills  issued 
in  their  stead. 

In  1707  an  issue  of  Exchequer  bills  was  authorized  receiv- 
able for  taxes,  or  payable  at  the  Exchequer  for  any  obligation 
due  the  Government,  and  exchangeable  for  ready  money 
on  demand  at  the  Bank  of  England.  An  allowance  of  4>^  per 
cent,  per  annum  was  made  to  the  Bank  for  circulating  the 
bills.  These  bills  bore  no  interest  when  issued  from  the 
Exchequer,  the  amount  of  interest  to  be  paid  thereon  being 
left  to  the  discretion  of  the  Bank.  The  Bank  was  then  in  a 
position  to  guide  the  Exchequer  as  to  the  amount  of  bills 
which  could  be  safely  placed  in  circulation.  The  amount 
outstanding  from  time  to  time  varied  with  the  exigencies  of 
the  Exchequer.  The  use  of  the  bills  as  an  active  circulating 
medium  was  regulated  by  raising  or  lowering  the  denomina- 
tions in  which  they  were  issued. 


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BANKERS  TRUST  COMPANY 


The  Exchequer  bills  first  issued  were  worded  as  follows : 


No.  i88 


EXCHEQUER  BILL 
Reign  of  William  III 

Exchequer, 

26  April,  1697. 
By  virtue  of  an  Act  of  Parliament  passed  in  the  viii  year  of 
his  Maties  Reign,  This  Bill  entitles  the  bearer  to  Five  Pounds, 
to  pass  in  all  payments  to  Receives  qj.  Collectors  of  any  Ayds 
Taxes  or  Supplys  for  the  service  of  the  War  for  the  year  1697, 
(except  ye  HI  Shilling  Ayd),  to  be  reed  and  satisfied  by  y^  said 
Receivrs  or  CoUect^s  under  ye  Penalties  in  ye  Act  contained. 
R.  Howard  A  farthing  a  day  (L.S.) 

interest. 

When  the  issues  of  Exchequer  bills  became  excessive  they 
were  funded  into  other  forms  of  debt.  Thus  they  afforded 
a  flexible  credit  instrument  which  could  be  increased  or 
decreased  as  required  by  the  necessities  of  the  Government. 


Chapter  XVI 

Early  Forms  of  the  Funded  Debt 

(1688-1727) 

THE  early  forms  of  funded  debt  were  annuities  and  the 
perpetual  loans  from  the  Bank  and  the  East  India 
Company  and  later  from  the  South  Sea  Company  given  in 
exchange  for  their  charter  privileges. 

Annuities 

The  annuity  loans  were  made  on  the  same  theory  as  that 
upon  which  annuities  are  sold  today  by  insurance  companies. 

The  seller  of  an  annuity  agrees,  in  consideration  of  the  re- 
ceipt of  a  given  sum  of  money,  to  make  the  purchaser  annually 
or  otherwise,  during  his  lifetime,  or  for  a  specified  period,  a 
definite  payment.  This  payment  is  larger  than  the  interest 
would  be  upon  the  principal  sum  because  upon  the  death  of 
the  purchaser,  or  upon  the  expiration  of  the  annuity  period 
the  sum  which  he  originally  paid,  or  what  may  remain  of  it 
becomes  the  absolute  property  of  the  seller.  That  is,  in  the 
case  of  a  pure  life  annuity,  the  seller  and  the  purchaser  specu- 
late upon  the  probable  life  of  the  purchaser,  the  latter  to  in- 
crease his  income,  the  former  with  a  view  to  profit.  Present- 
day  tables  based  upon  a  study  by  insurance  actuaries  of  the 
expectancy  of  life  are  remarkably  accurate  in  indicating  the 
average  expectancy  of  life  at  a  given  age.  The  whole  prin- 
ciple of  insurance  is  based  on  this  theory  of  averages. 

The  tontine  policy  was  invented  by  an  Italian  of  the  name 
of  Tonti.  He  devised  a  plan  by  which  a  group  of  individuals 
would  agree  with  the  seller  of  an  annuity  and  with  each  other 

[lOI 


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102] 


BANKERS  TRUST  COMPANY 


that,  as  members  of  the  group  died,  the  survivors  should  have 
divided  among  them  the  amounts  to  which  the  decedents 
would  have  been  entitled  until  eventually  the  entire  annuity, 
or  an  agreed  proportion  thereof,  would  go  to  the  final  sur- 
vivor. 

The  loan  of  1692  for  £1,000,000  was  ofl^ered  on  this  basis, 
the  benefit  of  survivorship  to  last  until  the  group  was  re- 
duced to  seven.  The  idea  was  new  in  England  and  not  under- 
stood, so  the  loan  was  a  failure,  only  £108,000  being  raised. 
At  subsequent  periods  several  tontine  annuity  loans  were 
placed. 

In  1695  long  annuities  having  90  years'  certain  duration 
were  introduced. 

The  annuity  principle  for  funded  loans  was  the  one  chiefly 
used  during  the  i8th  century.  It  was  often  used  in  com- 
bination  with  other  schemes.  One  of  these  which  came  to 
be  increasingly  in  vogue  until  the  close  of  the  American  War 
in  1783  was  the  lottery  loan  which  will  be  found  described  in 
Chapter  XVII. 

The  ''Fund  of  Credit  Idea 

There  was  a  theory  prevalent  in  the  latter  part  of  the 
seventeenth  century  and  the  early  part  of  the  eighteenth 
century  known  to  economists  as  the  "fund  of  credit"  idea. 
It  was  in  pursuance  of  this  idea  that  the  Bank  of  England 
was  organized.  The  entire  original  capital  of  the  bank  as 
well  as  part  of  the  deposits  were  loaned  to  the  nation.  This 
left  the  Bank  as  a  basis  for  conducting  its  business  a 
"fund  of  credit"  founded  upon  its  loan  to  the  Govern- 
ment.  Similar  was  the  policy  of  Parliament  in  forcing 
the  East  India  Company  to  pass  on  to  the  Government  in 
exchange  for  its  obligations  the  proceeds  of  its  sales  of  stock. 


ENGLISH  PUBLIC  FINANCE 


[103 


A  bank  known  as  the  Million  Bank  was  organized  in  1695 
on  the  same  basis  and  for  a  while  conducted  a  moderately 
successful  business.  Pushed  to  its  logical  conclusion,  such  an 
idea  could  be  developed  indefinitely.  Its  prevalence  was  not 
confined  to  England.  The  idea  was  at  the  basis  of  the 
organization  of  the  South  Sea  Company  which  was  chartered 
in  171 1  and  of  John  Law's  Mississippi  Company  which  had 
such  a  meteoric  career  a  few  years  later  in  France. 

The  East  India  Company 

The  original  East  India  Company  was  chartered  by  Queen 
Elizabeth  in  the  year  1600.  To  it  was  given  the  exclusive 
privilege  of  trade  for  fifteen  years.  This  period  was  subse- 
quently extended  from  time  to  time,  to  Asia,  Africa,  and  to 
America  and  intervening  islands  from  the  Cape  of  Good  Hope 
to  the  Straits  of  Magellen. 

The  company  opened  up  trade  with  India  and  became^a 
rich  and  powerful  corporation.  The  success  of  the  company 
led  to  eflForts  at  competition  and  finally  to  the  organization 
in  1698,  under  parliamentary  act,  of  a  dangerous  rival.  The 
consideration  for  the  charter  of  the  new  company  was  that 
it  should  make  a  loan  to  the  State  of  £2,000,000.  When 
the  stock  was  oflPered,  the  old  company  subscribed  £315,000 
and  became  the  dominant  factor  in  the  new  body.  Finally, 
in  1702  in  the  reign  of  Queen  Anne,  the  companies  were 
merged  and  given  exclusive  privileges  in  consideration  of  a 
further  loan  of  £1,200,000. 

The  story  of  the  East  India  Company  is  one  of  the  ro- 
mances of  commerce.  It  was  through  its  efforts  that  the 
great  Empire  of  India  was  won  for  Great  Britain.  Its  fam- 
ous "East  Indiamen'*  held  unquestioned  pre-eminence 
among  the  merchant  vessels  of  the  world  down  to  the  middle 


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BANKERS  TRUST  COMPANY 


of  the  nineteenth  century.  Some  of  the  most  stirring  chap- 
ters in  England's  commercial  history  are  written  around  the 
voyages  of  these  ships  and  the  stories  of  Clive  and  Hastings 
will  ever  be  memorable  in  England's  military  history. 

India  has  been  the  great  imperial  training  school  for  a 
long  line  of  illustrious  British  soldiers  and  administrators. 
The  government  was  taken  over  by  the  Crown  in  1858,  after 
the  mutiny. 

TAe  South  Sea  Company 

The  most  spectacular  operation  based  upon  the  fund  of 
credit  idea  was  that  with  the  South  Sea  Company.    This  com- 
pany was  at  its  inception  to  all  intents  a  government  under- 
taking, although  incorporated  (in  September,  171 1)  as  a  pri- 
vate company.    It  received  a  charter  giving  it  exclusive  trad- 
ing rights  to  the  east  coast  of  South  America  with  certain 
limited  exceptions  and  a  monopoly  of  trading  in  the  Pa- 
cific Ocean  including  the  entire  American   Pacific  Coast. 
In  consideration  of  these  trading  rights,  which  were  expected 
to  have  great  value,  the  company  was  to  ofl^er  to  exchange 
its  stock  for  the  outstanding  unfunded    government   debt 
and  in  addition  was  to  pay  the  Government  ££;oo,ooo.     The 
(government  was  to  pay  the  company  interest  at  the  rate 
of  6  per  cent,  per  annum  upon  all  stock  which  it  should 
thus  acquire  and  in  addition  £8,000  a  year  for  management. 
This  oflFer  was  accepted,  up  to  the  close  of  171 1,  by  the 
holders  of  upwards  of  nine  million  of  government  obligations. 
Further   exchanges    and    adjustments,  in   1714,  made  the 
capital  and  the  debt  balance  at  an  even  ten  million  pounds. 
A  further  small  operation  took  place  in  1719  when  the  sum 
of  £1,746,844  was  converted.     At  this  time  those  in  control 
of  the  company  and  their  associates  in  the  Government 


ENGLISH  PUBLIC  FINANCE 


[los 


determined  upon  an  operation  of  no  less  importance  than 
that  of  the  conversion  of  the  entire  balance  of  the  debt  into 
the  company^s  stock.     If  this  scheme  could  have  been  car- 
ried out  the  company  would  have  had  a  capital  of  around 
fifty  million  pounds  and  would  have  practically  monopolized 
the  banking  and  trading  business  of  the  kingdom.     However, 
the  Bank  and  the  East  India  Company  would  not  come  into 
the  arrangement.     It  was  then  decided  to  go  ahead  without 
them.     By  wholesale  bribery  of  the  members  of  Parliament 
and  of  government  officials,  and  by  collusion  with  no  less  a 
person  than  the  Chancellor  of  the  Exchequer,  the  necessary 
legislation  was  obtained  and  the  plan  successfully  launched. 
This  was  not  accomplished  without  active  competition  from 
the  Bank.     The  competitive  bidding  of  the  Bank  led  the 
company  finally  to   offer  the  Government  very   attractive 
terms.     Provided  all  of  the  holders  of  government  obliga- 
tions, except  the  Bank  and  the  East  India  Company,  con- 
verted their  holdings  the  company  was  to  pay  the  Govern- 
ment £7,567,500  and  was  to  surrender  its   trading  rights, 
but  with  a  tacit  understanding  with  Aislabie,  the  Chancellor 
of  the  Exchequer,  that  they  would  be  restored  later  on.    The 
Government  in  turn  was  to  pay  interest  at  five  per  cent,  per 
annum  upon  its  obligations  acquired  by  the  company.     It 
was  agreed  that  after  1727  the  interest  rate  should  be  reduced 
to  four  per  cent.     The  advantage  to  the  nation  lay  in  this 
saving  of  one  per  cent,  in  interest  and  in  the  receipt  of  the 
cash  payment  of  seven  and  a  half  million.     Manifestly,  even 
if  trading  rights  were  restored,  which  was  part  of  the  pro- 
gram, there  was  no  legitimate  basis  for  such  a  payment  by 
the  company. 


io6] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[107 


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The  Outcome  of  South  Sea  Scheme 

The  profit  to  the  promoters  was  to  come  from  stock  mar- 
ket operations  on  a  huge  scale  and  they  little  cared  what  hap- 
pened afterward  to  their  new  stockholders,  the  present  holders 
of  government    debt.     By  spreading  tales    of  the    great 
profits  to  be  derived  from  their  trading  rights— for  they  took 
good  care  not  to  let  it  be  known  that  these  had  been  surren- 
dered—and by  the  rankest  kind  of  stock  market  manipulation 
they  forced  the  quotations  of  their  stock  up  to  200,  then  to 
300,  then  to  800  and  finally  to  1050.    As  the  stock  advanced 
they  offered  the  holders  of  government  debt  the  privilege 
of  exchanges  at  three  to  one,  then  at  four  to  one.     As  their 
terms  with  the  Government  were  for  even  exchanges  they 
thus  accumulated  a  large  amount  of  treasury  stock,  some  of 
which  they  were  able  to  sell  at  the  advanced  prices  and  thus 
to  accumulate  a  temporary  dividend  fund  and  one  for  use  in 
manipulating  the  market.     If  the  plan  could  have  been  car- 
ried out  in  its  entirety  the  profits  realized  upon  the  private 
holdings  of  the  "insiders"  would  have  been  immense.    The 
magnitude  of  the  operation  and  the  rapidity  of  the  advance 
proved  to  be  their  undoing.     Other  promoters  came  into  the 
market  with  their  schemes  and  a  wild  orgy  of  speculation 
took  place.  As  usually  happens  in  such  a  market,  the  col- 
lapse, when  it  came,  was  sudden  and  severe.     The  exchange 
of  public  securities   for  the    company's    stock  had    been 
achieved,  but  the  speculators  were  most  of  them  ruined  and 
the  public  robbed.     Strange  as  it  may  seem,  the  company 
remained  solvent.     Its  new  stockholders,  most  of  them  the 
former  holders  of  government  obligations,  held  the  stock  at 
varying  pnces.     The  Government  had  to  surrender  its  right 
to^the  seven  and  a  half  million,  and  to  make  the  company  a 


temporary  loan  of  a  million  pounds  in  the  form  of  Exchequer 
bills.  It  carried  out  its  contract  to  pay  the  five  per  cent,  per 
annum  until  1727  and  then  four  per  cent.,  which  yielded  a 
corresponding  return  upon  the  company's  stock.  The  con- 
spirators were  severely  punished  by  loss  of  office,  imprison- 
ment and  loss  of  property.  The  worst  sufferers  were  those 
among  the  public  who  were  tempted  to  speculate  in  this  and 
the  various  schemes  which  were  promoted  during  the  period 
of  the  craze.  For  a  long  time  afterward  stock  speculation 
was  much  in  disfavor  and  '''Change  Alley"  neglected. 

The  subsequent  history  of  the  company  can  be  quickly 
told.  It  existed  until  1854  purely  as  an  investment  cor- 
poration holding  government  debt,  receiving  the  interest 
thereon  and  disbursing  it  to  its  stockholders.  Finally  in  1854 
the  last  of  the  debt  was  paid  and  the  company  liquidated. 


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Chapter  XVII 

State  Lotteries  and  Lottery  Loans 

(1694-1826) 

^HE  first  lottery  loan  was  raised  in  1694.     The  lottery 
^  principle  had  long  been  known  and  used  on  the  Continent 
and  was  not  entirely  new  to  England. 

T/ie  First  English  Lotteiies 

The  first  English  lottery  of  which  there  is  any  record  was 
one  projected  in  the  reign  of  Elizabeth  and  issued  under  her 
patronage  in  the  year  1569.  The  bill  announcing  it  states 
that  the  same  Lotterie  is  erected  by  her  majestie^s  orders  to 
the  intent  that  such  commoditie  as  may  chaunce  to  arise 
thereof,  after  the  charges  borne,  may  be  converted  towardes 
the  reparation  of  the  havens  and  Strength  of  the  Realme,  and 
towards  such  other  publique  good  workes/'  We  have  no  rec- 
ord as  to  the  amount  which  it  yielded. 

A  loan  by  lottery  was  raised  in  the  time  of  James  I,  the 
proceeds  being  used  to  defray  the  expenses  attending  the 
establishment  of  the  colonies  in  America. 

The  first  lottery  loan  of  King  William  III  was  for 
£1,000,000.  It  was  ofl^ered  in  shares  of  ten  pounds. 
Annuities  of  £14  per  cent,  for  16  years  were  variously 
apportioned,  £14  per  cent,  on  every  share  and  a  larger  pro- 
portion for  the  holders  of  2,500  fortunate  tickets.  The 
principal  prize  was  £1,000.  The  annuity  of  £140,000  was 
made  a  charge  upon  the  salt  duties.  The  operation  was 
called  the  Million  Lottery  and  the  annuities  the  Salt  Lottery 
Annuities. 

108] 


ENGLISH  PUBLIC  FINANCE  [  IO9 

There  were  seven  lottery  loans  from  1711  to  1714  in 
the  reign  of  Queen  Anne  which  yielded  to  the  Government 
£9,000,000,  but  the  bonuses  paid  to  the  holders  of  fortunate 
lottery  tickets  amounted  to  £2,734,000. 

The  use  of  State  lotteries  in  connection  with  the  Spanish- 
Austrian  War  financing,  174S  1748,  gave  a  guise  of  respecta- 
bility to  this  method  of  raising  money.  It  is  not  surprising, 
therefore,  to  find  that  bridges  were  built  over  the  Thames, 
and  the  British  Museum  founded  with  funds  derived  from 
lotteries. 

Lottery  Loans  in  the  American  War 

It  was  in  connection  with  the  financing  of  the  American 
War  (1775-1783)  that  the  lottery  loan  had  its  greatest  vogue. 

The  loans  offered  were  all  on  the  lottery  basis.  They  were 
sold  at  a  progressively  heavy  discount.  In  1776  for  £2,000,- 
000  the  Treasury  offered  for  every 

£  8 

£100  subscribed  3  per  cent  stock 77         10 

And  three  lottery  tickets  (in  all  60,000)  valued  at 
£10  each;  the  prizes  being  funded,  the  holders 
of  the  fortunate  lottery  tickets  received  at  par 
3  per  cent  stock 30 

or  in  all  for  £100  cash £107         10 

The  next  loan  was  in  4%  stock  at  par  with  a  los  short  an- 
nuity; the  two  following  were  in  3%  stock  at  par  with  more 
liberal  annuities.  Then  came  another  at  4%  at  par  with  an 
annuity.  Finally  with  the  growing  necessities  of  the  Govern- 
ment and  increasing  depreciation  of  government  stock  it  was 
necessary  in  1781  to  offer,  for  £12,000,000  in  cash,  £18,000,- 
000  3  per  cents  and  £3,000,000  fours.  Again,  in  1782,  for 
£  1 3  >SOO,ooo  cash,  theTreasury  gave  the  same  amount  in  threes, 


i 


-'ir 


no] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[III 


I 


SO%  additional  in  fours  and  a  liberal  annuity.  The  loans  of 
1783  and  1784  were  placed  on  substantially  the  same  basis, 
although  it  was  found  necessary  in  1783  to  give  only  25% 
in  fours,  but  in  1784  it  was  necessary  to  give  50%  again,  but 
a  smaller  annuity  was  given. 

Every  one  of  these  loans  carried  the  privilege  of  purchas- 
ing, at  £10  each,  a  certain  percentage  of  lottery  tickets.  For 
instance,  in  connection  with  the  £6,000,000  loan  of  1778  there 
were  48,000  lottery  tickets.  Each  subscriber  of  £1,000  re- 
ceived  an  equivalent  amount  of  3%  stock  and  an  annuity 
for  30  years  of  £2  los  on  each  £100,  practically  5>^%  for  30 
years,  with  the  privilege  of  purchasing  eight  lottery  tickets 
for  an  additional  payment  of  £80.  In  the  case  of  the  loan  of 
1782  a  subscriber  of  £1000  received  £1000  in  3%  stock, 
£500  in  4%  stock  and  a  long  annuity  of  17s  6d  on  each  £100. 
He  also  might  subscribe  for  three  lottery  tickets. 

The  prizes,  which  amounted  to  the  total  sum  paid  for  the 
tickets,  were  not  funded  as  they  had  been  at  other  times,  but 
were  paid  in  cash  to  the  holders  of  the  fortunate  tickets  in  the 
Spring  of  the  following  year.  It  would  thus  appear  that  the 
Government  made  no  direct  gain  from  the  lottery  itself,  act- 
ing merely,  as  it  were,  as  an  agent  or  stakeholder,  being  bene- 
fited by  the  incentive  given  to  the  public  to  take  the  loan; 

How  the  Loans  Were  Placed 

An  intelligent  contemporary  writer  has  given  us  a  record 
as  to  how  the  Chancellor  of  the  Exchequer  was  accustomed 
to  place  loans  during  this  period.  He  tells  us  that  it  was  usual 
for  the  minister  to  confer  in  private  with  a  few  moneyed  men  as 
to  the  terms  of  the  loan  and  thus  to  determine  a  basis  which 
would  be  acceptable  to  the  market. 

We  are  not  advised  whether  at  this  time  the  bankers  "un- 


derwrote" the  sale  of  the  loan,  but  we  know  that  at  a  later 
date  it  became  customary  for  them  to  purchase  the  loan  in 
bulk  and  then  to  distribute  it  to  their  patrons  at  a  moderate 
advance.     When  a  new  loan  was  contracted  prior  to  the  pay- 
ment of  the  last  instalment  of  a  preceding  loan,  it  was  usual  to 
give  the  preference  to  the  contractors  for  the  preceding  loan. 
As  it  was  illegal  for  a  private  individual  to  pay  or  receive 
over  5%  interest  for  money,  it  was  apparently  deemed  im- 
proper for  the  State  to  offer  a  higher  rate.     Therefore  in  order 
to  draw  capital  to  the  Exchequer  it  was  deemed  necessary  to 
make  the  offering  attractive  in  other  ways  than  by  directly 
giving  a  higher  rate  of  interest.     The  Treasury  officials  seem 
to  have  thought  chiefly  about  the  addition  which  the  debt 
charge  would  make  to  the  budget.     They  were  not  much  con- 
cerned about  the  nominal  par  value  of  the  debt.     On  the 
other  hand  the  bankers  naturally  desired  terms  which  would 
make  the  loan  attractive  to  the  public  and  thus  readily  ne- 
gotiable.    At  the  same  time  they  very  naturally  wanted  such 
terms  as  would  aflFord  opportunities  for  a  handsome  profit  on 
their  part,  if  not  at  the  time,  at  any  rate  in  the  subsequent 
dealings  in  the  market.     Hence  it  became  customary  during 
LordNorth*s  incumbency  of  the  Exchequer,  as  already  stated, 
for  every  £1000  in  money  to  give  3%  and  4%  stock,  either  or 
both,  equivalent  in  market  value  to  the  money  to  be  advanced, 
with  an  annuity  in  addition,  in  some  cases,  and,  in  every  in- 
stance, with  the  privilege  of  purchasing  a  certain  percentage 
of  lottery  tickets.     The  subscription  was  still  further  "sweet- 
ened" by  making  the  money  payable  in  installments  over  a 
period  of  months,  the  purchaser  being  entitled  to  all  interest 
accrued   from  the   date  of  the  loan.     This   last   privilege 
amounted  in  some  cases  to  as  much  as  two-fifths  of  a  year's 
interest. 


112] 


I 


III 


BANKERS  TRUST  COMPANY 


For  the  payments  against  each  class  of  obligation  issued 
receipts  were  given.  These  receipts  were  called  ''scrip/* 
When  handled  together  they  were  spoken  of  as  the  "omnium. '* 
Transactions  during  the  period  before  the  loan  was  paid  up 
in  full  might  be  either  in  the  several  classes  of  ''scrip*'  or  in 
the  "omnium.**  The  subscriber  had  the  privilege  of  paying 
in  full,  which  privilege  if  exercised  entitled  him  to  a  cash  dis- 
count. 

The  way  in  which  the  dealers  and  investors  in  government 
loans  estimated  the  market  value  of  the  "omnium**  was  this: 
The  lottery  tickets  always  had  an  independent  market.  Ex- 
perience  showed  that  an  immediate  sale  could  be  made  of 
these  tickets  at  a  profit  of  from  2s  to  3  s  each,  depending  upon 
the  total  amount  of  tickets  in  the  lottery.  The  value  of  the 
3  per  cent,  or  4  per  cent,  stock  received  was  determined  by 
current  stock  exchange  quotations.  For  example,  in  1782, 
when  the  Exchequer  offered  £20,250,000  par  value  for 
£13,500.000  in  money  the  account  worked  out  something  as 
follows; 

For  £100  the  subscriber  received 


1st  £100  3%  stock  having  a  market  value 
of,  say 

2nd  £50  4%  stock  having  a  market  value 
of,  say 

3rd  A  long  annuity  for  17  s  6  d,  whose  capi- 
talized value  would  be  about    . 

4th  Three-tenths  of  a  lottery  ticket  by 
which  he  would  have  a  profit  of,  say  . 

5th  Discount,  due  to  the  fact  that  the  stock 
when  issued  carried  about  two-fifths  of 
a  year's  accrued  interest  for  which  the 
subscriber  was  not  required  to  pay 

Total 


60 


40 


17 


£120 


ENGLISH  PUBLIC  FINANCE 


[113 


It  does  not  necessarily  follow  that  these  prices  were  real- 
ized by  the  lenders.  For  instance,  the  price  of  3%  stock 
fluctuated  in  1782  between  61  and  53^.  However,  the 
terms  of  the  loans  at  this  period  were  liberal  and  the  oppor- 
tunities for  profit  were  good. 

The  diflPerent  classes  of  scrip  were  actively  dealt  in  in 
'Change  Alley,  as  a  large  speculative  account  could  be  carried 
with  a  very  small  amount  of  cash  capital.  The  subscription 
receipts  paid  in  full  were  called  in  the  Alley  "heavy  horse," 
while  the  part-paid  certificates  were  known  as  "light  horse." 
The  "light  horse"  was  the  popular  variety  for  speculative 
purposes  and  therefore  commanded  a  relatively  better  price. 
This  was  because  it  took  much  less  capital  to  carry  a  given 
par  amount,  while  the  percentage  of  profit,  if  a  profit  were 
realized,  would  be  larger. 

The  State  Lotteries  IJ84-1826 

We  may  now  conveniently  give  the  further  history  of  the 
State  lotteries. 

After  1784  the  practice  was  discontinued  of  attaching 
lottery  schemes  to  loan  flotations,  but  until  1823  a  certain 
percentage  of  the  annual  requirements  of  the  Exchequer  was 
regularly  provided  from  the  proceeds  of  the  sale  of  lottery 
tickets. 

There  were  no  lotteries  in  1824  and  1825;  and  in  1826  the 
last  State  lottery  was  drawn.  Ashton,  in  his  "History  of 
English  Lotteries,"  tells  us  that  the  method  pursued  by  the 
Chancellor  of  the  Exchequer  in  placing  the  lottery  tickets  was 
to  invite  a  few  of  the  leading  stock  brokers  to  a  conference,  in 
which  he  would  state  his  views.  He  would  tell  them  that  he 
intended  to  issue  a  lottery  for,  say,  £500,000  in  £10  tickets — 
all  to  be  distributed  as  prizes.     He  would  then  ask  at  what 


m  M 


114] 


BANKERS  TRUST  COMPANY 


price  they  would  tender  for  them.  A  competition  would 
then  ensue  and  finally  an  ofFer  might  be  accepted  of,  say,  five 
pounds  premium  a  share,  which  would  give  the  Government 
a  clear  profit,  without  risk,  of  £250,000.  Of  course,  those 
who  got  the  concessions  put  up  the  price  of  tickets,  but  as 
single  shares  were  seldom  bought— most  people  taking  a 
fourth,  an  eighth,  or  a  sixteenth  of  a  ticket— the  rise  was  not 
much  felt  by  the  public. 

Although  private  lotteries  were  illegal,  nevertheless  they 
seem  to  have  flourished.     The  example  set  by  the  State  was 
followed  by  people  in  all  walks  in  life.     There  were  lottery 
tailors,  lottery  staymakers,  lottery  glovers,  lottery  barbers, 
"where  a  man  being  shaved,  and  paying  threepence,  may 
stand  a  chance  of  getting  ten  pounds.'*    There  were  even  lot- 
tery shoeblacks.     There  were  frequent  cases  of  suicide  traced 
to  the  lotteries.     These  were  due  to  the  losing  of  employers' 
money  and  trust  funds  by  those   who   were   tempted   to 
gamble  in  this  way  and  to  disappointed  hopes  of  gain  which 
perhaps  meant  the  loss  of  one's  entire  patrimony.    There 
were  many  fraudulent  practices  connected  with  dealings  in 
the  lottery  tickets. 

The  prizes  varied,  ranging  in  some  instances  from  as  high 
as  £30,000  down  to  £500.  There  were  regular,  reputable 
brokers  who  made  a  business  of  dealing  in  lottery  tickets 
or  shares  in  tickets.  We  are  told  that  no  small  part  of  the 
business  of  the  stock  broker  consisted  of  dealings  in  lottery 
tickets.  There  were  also  many  disreputable  persons  who  de- 
vised all  sorts  of  schemes  to  make  money  in  connection  with 
the  lotteries.  One  scheme  which  flourished  for  some  time 
was,  for  a  consideration,  to  insure  the  receipt  of  prizes.  This 
was  in  reality  pure  betting.  In  return  for  say,  a  shilling,  a 
pound  would  be  promised  if  a  certain  specified  number  turned 


ENGLISH  PUBLIC  FINANCE 


[115 


up.  Of  course  these  insurances  were  illegal,  but  they  were  so 
profitable  to  the  officekeepers,  that  no  penalties  could  keep 
them  down.  Any  sum  might  be  insured  from  one  to  twenty 
guineas.  The  sum  charged  for  an  insurance  at  the  commence- 
ment of  a  lottery  drawing  gradually  increased  as  the  drawing 
proceeded,  depending  on  whether  the  large  prizes  came  out 
early  or  late.  The  class  preyed  upon  were  principally  domes- 
tic servants.  In  1800  it  was  computed  that  on  an  average  each 
servant  in  the  metropolis  spent  annually,  as  much  as  25 
shillings  in  this  reprehensible  practice  of  lottery  insurance. 
This  was  when  the  draw:ing  of  the  lottery  was  extended  over 
days  or  even  weeks. 

As  time  went  on  and  the  evils  of  lottery  became  more 
and  more  apparent,  there  was  a  growing  feeling  that  it 
should  be  abolished: — still,  it  was  not  until  1826  that  en- 
lightened public  opinion  finally  forced  its  discontinuance. 

Those  who  favored  the  lottery  claimed  that  properly  con- 
ducted it  was  a  voluntary  tax,  contributed  to  only  by  those 
who  could  aflFord  it,  and  collected  without  trouble  or  expense. 

They  claimed  that  most  of  the  evils  connected  with  the 
lottery  had  been  due  to  the  early  practice  of  protracted  draw- 
ings. In  1809  this  abuse  was  done  away  with  and  the  lottery 
was  decided  in  one  day.  Ashton  tells  us  that  extraordinary 
efforts  had  to  be  made  to  dispose  of  the  tickets  for  the  last 
lottery.  The  public  had  become  disgusted  with  this  method 
of  Government  financing  and  were  glad  to  see  it  discontinued. 

The  State  lotteries  yielded  a  gross  income  of  some  £45 
million,  but  the  expenses  of  management  and  prizes  absorbed 
over  £33  million.  Thus  the  net  income  from  this  source  was 
about  £12  million  or  about  £218,000  a  year  for  the  55  times 
between  1755  ^^^  1826  when  this  method  of  raising  revenue 
was  used. 


ENGLISH  PUBLIC  FINANCE 


[117 


^^. 


Chapter  XVIII 
The  Sinking  Funds 

XI/^E  may  now  profitably  consider  the  early  sinking  fund 
operations.     There  were  two  of  these,  known  respec- 
tively as  Walpole's  sinking  fund  and  Pitt's  sinking  fund. 

Walpoles  Sinking  Fund 

When  Robert  Walpole  became  Chancellor  of  the  Excheq- 
uer  m  October,  1715,  the  public  debt,  including  the  capital- 
ized  value  of  the  annuities,  amounted  to  around  fifty  million 
pounds  and  the  annual  charge  to  £3,164,000. 

The  people  were  genuinely  alarmed  at  the  magnitude  of 
the  debt.     It  had  increased  during  the  thirteen  years  of 
Anne's  reign  over  200  per  cent.     The  debt  charge  had  risen 
from  about  £1,200,000  to  over  £3,000,000.     A  capital  levy 
was  being  serioMsly  urged.     It  was  imperative  that  steps 
be  taken  to  quiet  the  alarm  and  to  stop  this  discussion  about 
a  capital  levy  which  was  most  distasteful  to  the  moneyed 
classes.    Therefore,  Walpole  brought  forward  in  March,  1717 
a  plan  for  a  sinking  fund.    Before  he  had  fairly  launched  this 
plan  there  was  a  change  in  the  Government  and  he  was  out 
of  the  Exchequer  for  four  years,  beginning  with  April,  1717. 
However,  his  plan  was  adopted  by  Stanhope,  his  successor, 
who  laid  proposals  before  Parliament  on  May  20,  1717,  which 
led  to  legislation  appropriating  the  surplus  revenues  of  the 
Bank,  the  South  Sea  Company  and  what  was  known  as  the 
General  Fund  to  the  redemption  of  the  debt  incurred  prior 
to  December  25,  171 6. 

By  Christmas,  1727,  £6,626,000  of  this  old  debt  had  been 
retired,  but  in  the  interval  it  had  been  necessary  to  borrow 
116] 


new  money  so  that  the  debt  had  actually  increased  about 
£2,000,000. 

Walpole,  with  all  his  ability  as  a  financier,  was  unwilling 
to  secure  a  radical  reduction  of  the  debt  by  imposing  worth- 
while taxation  for  that  purpose.  He  allowed  the  quarter  of 
a  century  between  wars  to  pass  with  only  a  nominal  debt 
reduction.  After  1727  the  sinking  fund  became  inoperative 
for  debt  reduction,  the  funds  appropriated  to  it  being  diverted 
to  meeting  current  expenses,  in  order  that  the  taxation  of  the 
landed  classes  might  be  reduced.  However,  as  a  result  of 
successful  refunding  operations,  chiefly  in  connection  with  the 
South  Sea  Company's  operations  as  described  above,  the  debt 
charge  was  reduced  between  1714  and  1739,  by  no  less  a  sum 
than  one  million  pounds. 

Pitfs  Sinking  Fund 

If  the  people  of  Walpole's  time  were  appalled  at  the  size 
of  the  debt,  those  living  half  a  century  later  had  good  reason 
to  be  still  more  alarmed.  In  the  interval  the  Seven  Years 
War  and  the  American  War  had  raised  the  debt  fivefold  and 
the  debt  charge  nearly  in  the  same  proportion.  Therefore, 
after  putting  his  house  in  order  by  introducing  needed  reforms 
in  taxation  and  funding  the  floating  debt  Pitt,  the  then  Chan- 
cellor of  the  Exchequer,  brought  forward,  in  1786,  a  plan  for 
a  sinking  fund  which,  within  a  period  of  forty-five  years,  would 
entirely  free  the  nation  from  debt. 

The  sinking  fund  was  to  be  a  sure  specific  against  the  dan- 
gers of  a  public  debt.  In  fact  it  was  to  be  a  prophylactic 
which  would  make  it  quite  safe  on  occasion  to  increase  the 
debt.  This,  because  with  each  increase  of  debt  there  was  to 
be  an  increased  fund  with  which  to  insure  its  cancellation. 

One  million  pounds  a  year  was  to  be  taken  from  revenue 


1181 


II 


3!« 


BANKERS  TRUST  COMPANY 


and  paid  to  the  Commissioners  for  the  Reduction  of  the 
National  Debt,  in  whose  favor  also  the  existing  life  and 
terminable  annuities  were,  on  their  expiration,  to  be  con- 
tinued. The  Commissioners  were  to  invest  their  income 
from  all  sources  in  purchase  of  the  funded  debt,  until  the 
annual  sum  received  by  them  amounted  to  £4,000,000, 
after  which  dividends  on  capital  stock  to  be  paid  off  by 
them,  and  any  life  and  terminable  annuities  which  should 
mature,  should  cease  and  be  considered  as  redeemed.  Sub- 
sequently £400,000  a  year  was  added  to  the  fund;  also  a  sum 
equal  to  the  interest  saved  by  any  reduction  of  interest  on 
any  redeemable  stock;  and  one  per  cent,  on  all  new  loans 
issued  for  public  purposes. 

Fallacy  of  Pitfs  Scheme 

It  is  difficult  to  understand  the  vogue  which  this  theory 
had  for  nearly  half  a  century. 

The  general  principle  that  money  placed  at  compound  in- 
terest  will  double  itself  at  6  per  cent,  in  about  12  years,  at  4 
per  cent,  in  about  18  years,  and  so  on,  is  undeniable,  but  the 
error  lay  in  assuming  that  to  buy  up  and  "keep  alive ^'  the 
Nation's  own  obligations  was  equivalent  to  placing  the  funds 
of  the  sinking  fund  at  interest. 

If  peace  had  continued  for  an  indefinite  period,  and  if  the 
additions  to  the  fund  had  scrupulously  been  made  from  taxa- 
tion alone,  it  would  have  accompHshed  its  purpose.  But 
this  would  not  have  been  because  of  the  accumulations 
from  compound  interest,  but  because  an  amount,  de- 
termined by  such  calculations,  had  in  reality  been  taken 
from  the  people  in  the  form  of  taxation.  Strange  as  it  may 
seem,  most  of  the  brightest  intellects  of  the  day  were  confused 
on  this  matter.     If  England  could  have  placed  a  fund  in  some 


ENGLISH  PUBLIC  FINANCE 


[119 


other  country,  or  in  Mars,  to  accumulate  at  compound  in- 
terest, the  theory  and  the  practice  would  have  been  in 
harmony.  So  long  as  the  fund  had  to  accumulate  at  home,  it 
was  all  one  whether  a  straight  annual  appropriation  for  the 
reduction  of  the  debt  were  made  from  revenue,  or,  an  appro- 
priation made  determined  by  the  circumlocution  of  the 
sinking  fund  legislation. 

However,  when,  as  happened  later,  the  Commissioners 
borrowed  money  for  the  sinking  fund,  instead  of  obtaining 
it  by  taxation,  and  when,  to  cap  the  climax,  they  paid  more 
for  this  borrowed  money  than  the  rate  of  interest  borne  by  the 
debt  redeemed,  the  situation  became  a  serious  one.  As  Tom 
Paine  tersely  and  humorously  put  the  case  in  one  of  his  nu- 
merous pamphlets:  "As  to  Mr.  Pitt's  project  of  paying  off  the 
National  Debt,  by  applying  a  million  a  year  for  that  purpose, 
while  he  continues  adding  more  than  twenty  million  a  year 
to  it,  it  is  like  setting  a  man  with  a  wooden  leg  to  run 
after  a  hare.     The  longer  he  runs  the  farther  he  is  off." 

The  lesson  of  the  ineffectiveness  of  the  cumulative  sinking 
fund,  as  thus  administered,  was  not  learned  for  a  number  of 
years.  It  was  not  until  1829  that  this  fallacious  method  was 
finally  abandoned,  and  not  until  after  £330,000,000  had  been 
raised  at  an  average  cost  of  £5  os  6d  per  cent,  per  annum,  to 
pay  off  debt  carrying  interest  at  £4  los  od  per  cent.  The 
difference  between  these  two  rates  is  los  6d  per  cent,  per 
annum.  Therefore,  before  the  nation  awoke  to  its  folly  it 
had  increased  its  annual  fixed  debt  charge  for  this  purpose 
by  £1,628,000! 


Modern  Sinking  Funds 

Finally  the  discovery  was  made  that  the  only  way  to  pay 
off  the  debt  was  from  an  excess  of  clear  revenue,  derived  from 


I20] 


BANKERS  TRUST  COMPANY 


}} 


li 


m 


taxation,  over  the  expenditures  for  current  needs,  upon  which 
principle  the  sinking  fund  functioned  from  1829  to  1914. 
However,  the  reduction  in  debt  was  small  because  of  the  un- 
willingness of  Parliament  to  make  any  substantial  appropria- 
tions for  the  purpose.  The  terms  of  existing  sinking  funds  are 
given  in  notes,  following  the  National  Debt  Statement. 

In  1868,  and  again  in  1894,  ^he  plan  was  adopted  of 
issuing  terminable  annuities  in  lieu  of  funded  debt.  In 
1868  £24  million  of  Savings-Bank  stock  was  cancelled  and 
an  annuity  of  £1,760,000  substituted,  while  in  1884  Chancery 
stock  to  the  amount  of  £40  million  and  over  £30  million  of 
post-office-savings-bank  stock  were  similarly  treated.  Thus 
the  nominal  principal  of  the  debt  was  reduced  and  the  annual 
charge  increased,  just  reversing  the  South  Sea  Company  oper- 
ation of  1720  and  before.  The  advantage  of  the  operation  is 
hard  to  find,  as  the  Government  of  course  remains  obligated 
to  the  savings  banks'  depositors  and  the  estates  in  chancery 
for  the  full  amount  of  their  claims. 


Chapter  XIX 
Early  Refunding  Operations 

REFERENCE  has  already  been  made,  in  discussing  the 
affair  of  the  South  Sea  Company,  to  the  refunding 
operations  prior  to  1739.  There  were  only  two  refunding 
operations  of  importance  between  1739  ^^^  1817. 

Refunding  Operation  of  ly^g — ^'Consols'' 

Advantage  was  taken  of  the  period  of  peace  which  fol- 
lowed the  War  of  the  Austrian  Succession  to  take  meas- 
ures to  reduce  the  interest  paid  on  the  debt  to  a  uniform 
rate  of  3  per  cent.  At  that  time  the  funded  debt,  apart 
from  that  due  to  the  Bank  of  England,  South  Sea  Company 
and  East  India  Company,  consisted  of  various  debts  con- 
tracted at  different  periods  under  several  Acts  of  Parilament 
and  charged  on  many  distinct  funds. 

Parliament  enacted  a  law  in  1749  that  all  public  cred- 
itors at  four  per  cent,  should  be  paid  the  amount  of  their 
holdings  except  those  who  signified  their  consent  to  accept  - 
three  per  cent,  after  December  25,  1757.  These  were  to 
have  their  present  interest  continued  until  December  25, 
1750,  and  then  to  receive  3>^  per  cent,  until  December,  1757. 
The  amount  of  these  debts,  including  those  due  to  the  Bank 
and  the  companies  was  £57,700,000.  The  greater  part  of 
the  creditors  accepted  the  proposition.  A  modified  offer,  not 
quite  so  favorable,  was  made  to  those  who  held  out  and  was 
generally  accepted,  with  the  result  that  the  Treasury  was 
called  upon  to  pay  off  only  about  £3,000,000.  As  a  result 
of  these  operations  and  the  payment  of  £3,000,000  navy  debt, 
there  was  a  net  decrease,  in  round  figures,  of  nearly  £5,000,000 

[121 


122] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[123 


^il 


^ 


1 


i 


n 


in  debt  before  the  outbreak  of  the  Seven  Years  War  and  a 
reduction  in  the  annual  charge  of  £539,000.  As  an  indica- 
tion of  the  state  of  the  national  credit  it  may  be  noted  that 
the  three  per  cents  which  in  1748  sold  as  low  as  76  advanced  to 
an  average  price  of  about  par  in  1749-175 1,  and  upon  the 
successful  consummation  of  the  refunding  operations  sold  up 
to  106%  in  1752. 

The  success  of  this  operation  reflected  great  credit  upon 
the  administration.  It  also  gave  evidence  of  the  prosperous 
condition  of  the  country,  notwithstanding  the  long  war  which 
it  had  just  passed  through. 

In  the  session  of  1751-1752  an  act  was  passed  consolidat- 
ing certain  of  the  3%  issues  into  one  joint-stock  of  3% 
annuities. 

Thus  originated  the  "Consolidated  Annuities"  or  "Con- 
sols*' as  that  part  of  the  perpetual  debt  held  by  the  public 
has  ever  since  been  known. 

Funding  the  Floating  Debt  tn  IJ84. 

In  1784,  when  William  Pitt  the  younger  assumed 
the  duties  of  his  office  as  Chancellor  of  the  Exchequer, 
he  found  outstanding  floating  debt  for  over  £18,000,000, 
chiefly  in  the  form  of  navy  victualling  and  transport  bills. 
From  the  time  of  Charles  II  the  payments  for  navy  victual- 
ling and  stores  had  been  made  in  bills  payable  at  uncertain 
periods.  They  were  taken  at  a  discount  which  increased  very 
considerably  at  every  time  of  war.  During  the  last  five 
years  of  the  American  War  this  discount  had  varied  from 
wyi  per  cent,  to  \(M,  per  cent. 

Pitt  brought  about  legislation  by  which  the  Admiralty 
was  required  to  make  all  of  its  payments  in  bills  drawn 
at  ninety  days.     Thereafter,  as  these  bills  were  always  dis- 


charged with  rigid  punctuality  they  came  to  be  considered 
and  accepted  substantially  at  par,  with  a  resultant  large 
saving  to  the  Government. 

Of  the  navy  bills  outstanding  when  he  assumed  office  Pitt 
funded  into  5%  stock  £6,400,000  in  1785  and  £9,800,000  in 
1786,  giving  for  each  £100  debt  £107  10  s  6d  in  the  first  in- 
stance and  £111  8  s  in  the  second.  Pitt  was  desirous  of  com- 
pleting the  entire  transaction  in  1785,  but  in  deference  to  the 
views  of  the  bankers  spread  the  operation  over  two  years. 
In  view  of  his  later  change  of  policy  in  that  respect  it  is  of 
interest  to  note  his  statement  to  Parliament,  "that  a  fund  at 
a  high  rate  of  interest  is  better  to  the  country  than  those  at 
low  rates;  that  a  four  per  cent,  is  preferable  to  a  three  per 
cent,  and  a  five  per  cent,  better  than  a  four."  He  explains — 
"the  reason  is  that  in  all  operations  of  finance  we  should  al- 
ways have  in  view  a  plan  of  redemption.  Gradually  to  redeem 
and  to  extinguish  our  debt  ought  ever  to  be  the  wise  pursuit 
of  government.  Every  scheme  and  operation  of  finance 
should  be  directed  to  that  end  and  managed  with  that  view." 

Competitive  Bidding  Inaugurated 

Former  ministers  had  made  the  placing  of  loans  a  source 
of  patronage.  Pitt  resolved  to  consult  the  public  interest 
only.  He  gave  notice  through  the  Governor  and  the  Deputy- 
Governor  of  the  Bank  that  he  was  ready  to  contract  for  the 
loan  with  those  who  would  ofi^er  the  lowest  terms.  Sealed 
tenders  were  required.  He  thus  established  a  salutary  prece- 
dent which  has  been  followed  in  connection  with  all  sub- 
sequent loans  not  off*ered  at  fixed  prices.  It  may  be  noted  in 
passing  that  the  purchasing  of  army  supplies  was  placed  by 
him  on  a  similar  competitive  basis,  thus  ending  scandalous 
practices  of  long  standing. 


(T- 


hiip 

r 


y  : 


m 


I 


; 


:  4 


.   Chapter  XX 

Financing  the  Great  French  War 

(1793— 1817) 

^  I  ^HE  outbreak  of  the  French  Revolution  in  1789  leading 
-^  up  to  the  atrocities  of  1792  which  culminated  in  the 
execution  of  Louis  XVI  on  the  morning  of  January  21,  1793, 
ushered  in  a  period  of  internal  strife  and  of  foreign  wars  such 
as  France  and  the  world  had  never  before  experienced.  With 
the  declarations  of  war  by  France  in  February,  1793,  against 
England,  Holland  and  Spain,  the  period  of  peace  which  Eng- 
land had  enjoyed  since  the  American  War  and  the  hope  of  a 
further  similar  period  was  abruptly  ended.  The  administra- 
tion found  themselves  face  to  face  with  a  foreign  war,  while  for 
some  time  they  had  been  compelled  to  deal  with  dangerous 
uprisings  at  home.  Thus  ended  a  period  of  nine  years,  per- 
haps one  of  the  most  prosperous  and  happy  that  England  had 
ever  known.  It  had  not  been  a  period  of  prosperity  for  all 
classes,  because  the  radical  changes  in  the  conditions  of  the 
industrial  and  agricultural  classes  had  brought  cruel  hard- 
ships to  many.  However,  taking  the  country  as  an  entirety, 
it  had  been  a  time  of  decided  progress.  This  period  of 
prosperity  terminated  in  a  severe  financial  crisis  and  con- 
sequent "hard  times.**  A  succession  of  bad  harvests  caused  a 
scarcity  of  food  and  resultant  high  prices.  Throughout  the 
commercial  world  the  war  was  preceded  by  "a  great  revul- 
sion and  derangement  of  commercial  credit.*'  There  were 
many  failures  of  mercantile  houses,  while  no  less  than  26 
country  banks  were  forced  to  close  their  doors.  In  April, 
1793,  the  distress  became  so  acute  that  the  Government 
124 1 


ENGLISH  PUBLIC  FINANCE 


[125 


found  it  necessary  to  apply  extraordinary  remedial  measures. 
At  a  meeting  of  merchants  held  at  the  Mansion  House  on  the 
23  d  of  April  it  was  voted  to  apply  to  Mr.  Pitt  to  advance 
Exchequer  Bills  on  the  security  of  goods  and  merchandise  and 
other  property.  The  request  was  referred  to  Parliament  and 
on  the  29th  of  April,  Exchequer  Bills  to  the  extent  of  £5  mil- 
lion were  ordered  applied  to  advances.  This  measure  proved 
to  be  very  successful  in  allaying  fear  and  distrust.  The  fact 
that  assistance  could  be  obtained  if  needed  made  it  unneces- 
sary in  most  cases  to  ask  for  it. 

The  Loan  of  ijgj 

It  was  in  such  a  market  as  this  that  William  Pitt  was  com- 
pelled to  arrange  for  his  first  war  loan  of  £4,5cx),ooo.  This 
loan  was  obtained  by  a  sale  of  3  per  cent,  consols  at  72,  making 
the  money  cost  about  4^%  per  annum. 

The  effect  of  the  business  crisis  had  been  to  carry  down 
the  price  of  consols  from  quotations  of  around  90  which  had 
been  current  during  August,  September  and  October,  1792, 
to  below  80  in  the  latter  part  of  November.  Quotations  in 
January,  1793,  had  averaged  about  75.  Upon  the  declara- 
tion of  war  they  broke  to  72  and  under,  so  that  Pitt*s  bargain 
was  a  fair  one  for  the  Exchequer,  although  prices  rallied  al- 
most immediately  to  around  ^^  and  did  not  go  below  74  dur- 
ing the  rest  of  the  year.  The  choice  of  the  3  per  cents,  while 
contrary  to  Pitt's  previously  expressed  preference  for  stocks 
at  higher  interest  rates  and  therefore  selling  nearer  to  par,  was 
fully  justified  by  the  fact  that  thus  a  better  bargain  for  the 
Exchequer  could  be  made,  as  the  fours  and  fives  were  selling 
relatively  much  lower — that  is,  on  a  higher  interest  basis. 

The  war  thus  entered  upon  lasted  until  the  middle  of  the 


4) 


h 


!3fl 


if 


i  -l 


126 1 


BANKERS  TRUST  COMPANY 


year  1801,  although  the  formal  signing  of  the  articles  of  peace 
at  Amiens  did  not  take  place  until  March,  1802. 

The  war  ended  in  a  draw.  One  by  one  the  other  antago- 
nists dropped  out  until  England  and  France  alone  were  in- 
volved. Each  nation  was  ready  for  a  cessation  of  hostilities. 
Nothing  had  been  decided  and  in  the  settlement  Great  Brit- 
ain gave  up  practically  all  acquisitions  of  territory  which  she 
had  made.  Great  Britain  expended  during  the  nine  years 
about  four  hundred  and  twenty  million,  60  per  cent,  of  which 
represented  the  cost  of  maintaining  the  army  and  navy, 
against  a  normal  peace  expenditure  of  about  one-fifth  of  this 
amount.  The  interest  and  management  of  the  debt  absorbed 
another  30  per  cent,  so  that  over  90  per  cent,  of  the  expenditure 
of  the  period  may  be  said  to  have  been  due  to  war — past  and 
current.  Of  this  great  sum,  which  was  twice  the  average 
expenditure  during  the  period  of  the  ** extravagant"  Amer- 
ican War,  55.60  per  cent,  was  raised  by  taxation  and  the  re- 
mainder by  borrowing. 

TAe  LiOyalty  Loan  of  Ijg6 

During  this  period  there  were  eighteen  different  loan  ne- 
gotiations. We  have  seen  that  the  first  loan  was  placed  at  a 
little  over  4  per  cent.  In  1794,  1795,  and  the  early  part  of 
1796  it  was  necessary  to  pay  over  \yi  per  cent.  In  Decem- 
ber, 1796,  the  money  cost  over  5^  per  cent.,  while  in  1797 
and  1798  it  cost  from  6%  to  S^^  per  cent.  In  1799  and  1801, 
55^  per  cent,  was  paid,  but  in  1800  over  £20,000,000  was 
secured  at  about  4^  per  cent.  Most  of  the  loans  were  issued 
as  threes  with  annuity  bonuses  and  in  some  cases  with  a  per- 
centage in  fours.  The  rate  on  Navy  and  Victualing  Bills, 
issued  as  fives  repayable  after  relatively  short  periods,  was 
substantially  higher  than  that  paid  on  the  annuities.    The 


ENGLISH  PUBLIC  FINANCE 


I  127 


average  actual  rate  paid  on  all  loans,  long  and  short,  was 
almost  exactly  ^%  per  cent. 

The  Loyalty  Loan  issued  in  December,  1796,  was  offered 
for  public  subscription,  books  being  opened  at  the  Bank.  It 
was  a  year  of  great  difficulty.  The  progress  of  the  war  had 
been  discouraging.  There  had  been  a  run  on  the  Bank  involv- 
ing a  suspension  of  specie  payments.  There  had  been  a  serious 
mutiny  in  the  navy,  and  symptoms  of  discontent  appeared  in 
the  army.  Under  these  circumstances,  with  the  pressure  of 
taxation  keenly  felt,  the  ministry  believed  that  a  resort  to  the 
ordinary  methods  of  raising  a  loan  would  be  perilous.  It  was 
determined,  therefore,  to  throw  the  subscription  open  to  the 
public  and  to  appeal  to  the  patriotism  of  the  country. 

This  course  was  fully  justified  by  the  outcome.  Within 
fifteen  hours  the  entire  £18,000,000  was  oversubscribed. 
However,  the  loan  was  at  four  per  cent,  discount  before  the 
payment  of  the  deposit.  This  discount  afterward  became 
8  per  cent,  and  finally  14  per  cent.,  but  every  payment  was 
duly  made. 

Final  Period  (l8oj-l8l^) 

Such  a  peace  as  that  signed  at  Amiens  was  not  destined 
to  be  permanent.  British  statesmen  felt  that  it  was  danger- 
ous to  give  such  an  antagonist  as  Napoleon  time  in  which  to 
grow  strong.  They  therefore  took  advantage  of  a  dispute  in 
regard  to  the  disposition  of  Malta  to  renew  the  war  in  May, 
1803,  ^^d  thus  to  arrive  at  a  settlement  which  would  be  con- 
clusive. Notwithstanding  the  fact  that  they  caught  Napo- 
leon unprepared,  the  war  proved  to  be  one  of  long  duration. 
The  burdens  which  it  imposed  in  the  form  of  taxation  and 
debt,  deranged  industrial  conditions  and  unsettled  commerce 
were  tremendous.    It  has  been  said  that  it  was  a  war  of  the 


^ 
* . 

I  ■ 


if 


128] 


BANKERS  TRUST  COMPANY 


English  people  rather  than  of  great  leaders.  Pitt,  who  had 
dominated  the  first  period,  was  out  of  office  when  hostilities 
were  renewed.  Although  temporarily  called  back  under  the 
stressed  conditions  of  1804  he  had  only  been  at  the  head  of 
the  Government  a  couple  of  years  when  he  died  in  1806, 
brokenhearted  at  Napoleon's  apparent  invincibleness.  Thus 
we  find  no  one  master  mind  dictating  the  financing  of  this 
period. 

The  Cost  of  the  War 

During  the  second  period  of  the  war,  terminated  by  the 
treaty  of  Paris,  signed  November  20, 181 5,  the  annual  expense 
just  about  doubled  that  of  the  first  period.  Eliminating  an 
estimated  normal  expense  based  upon  the  budgets  of  the  last 
preceding  peace  period  the  average  annual  war  expense  of 
the  first  period  of  the  war  was  approximately  twenty-eight 
million  and  of  the  second  period  sixty-two  million. 

Taking  the  entire  period  of  23  years  of  war  into  consider- 
ation the  total  cost  in  round  figures  was  about  £1,200  million, 
a  yearly  average  of  £52,150,000.  This  total  is  accounted  for 
as  follows:  Direct  increased  military  and  naval  expenditure, 
£826,223,000,  increased  cost  of  civil  government  £111,212,- 
000,  increased  debt  charge  £262,077,000.  The  extraordinary 
expenses  of  18 16  are  included  in  these  figures  as  the  accounts 
of  this  year  were  still  considerably  affected  by  the  aftermath 
of  the  war.  In  making  estimates  such  as  this  most  writers 
include  only  the  direct  military  expense.  This  manifestly 
leads  to  an  underestimate.  The  increased  cost  of  civil 
government  due  to  the  war  conditions  should  surely  be  taken 
into  consideration  and  there  should  be  no  difference  of  opinion 
as  to  the  propriety  of  including  the  increased  burden  of  the 


ENGLISH  PtJBLIC  FINANCE 


[129 


national  debt,  to  the  extent  that  the  increase  in  debt  is  caused 
by  the  financing  of  the  war. 

It  is  unfortunately  true  that  with  each  recurring  war 
there  is  not  only  a  permanent  addition  to  the  debt  charge,  but 
also  to  the  cost  of  civil  government,  while  the  military  ex- 
penditure rises  to  a  new  level. 

Furthermore,  each  recurring  war  costs  more  for  each  year 
of  war  than  does  its  predecessor.  The  first  three  wars  oc- 
curring after  the  Revolution  cost  on  the  average  four  million 
sterling,  for  each  year  of  war;  the  next,  12  million;  the  next, 
13  million;  the  first  part  of  the  Great  French  War,  28  million, 
and  the  last,  62.  The  two  other  great  wars  of  England  pre- 
ceding the  greatest  of  all  which  has  just  ended — namely,  the 
Crimean  and  the  Boer  Wars — cost  on  the  average,  respectively, 
£24  and  £70  million  for  each  year  of  war.  This  is  not  a  place 
to  moralize,  but  the  mere  statement  of  the  facts  alone  is  an 
eloquent  indictment  of  war  as  a  method  of  settling  inter- 
national disputes.  How  frequently  we  find  upon  the  con- 
clusion of  a  war  that  the  articles  of  peace  in  no  way  refer 
to  the  ostensible  cause  of  the  war.  Still,  if  ever  a  war  was 
really  justified,  this  twenty-three-year  war  of  England's  was 
such  a  one — the  first  part  of  it  a  stand  against  the  spectre 
of  world  anarchy  and  the  second  against  the  overweening 
ambition  and  autocratic  plans  of  Napoleon. 

The  Cost  Met  from  Taxation 

The  financing  of  the  war  covered  the  Exchequer  period 
from  October  10,  1793,  to  January  5,  18 17.  It  is  impossible 
to  give  the  statistics  with  absolute  accuracy,  as  in  1801  a 
change  took  place  in  the  method  of  stating  the  accounts. 
Prior  to  that  date  the  returns  are  on  a  "net"  basis — that  is, 
the  cost  of  collection  and  management  of  the  revenues  is 


i3ol 


BANKERS  TRUST  COMPANY 


1' 


I 


deducted  therefrom.  Thereafter  the  gross  revenue  is  given 
and  the  expenses  of  collection  are  stated  on  the  other  side 
of  the  account.  The  returns  are  said  to  be  on  a  "gross** 
basis.  Therefore,  for  part  of  the  period  under  review  we 
have  "net"  returns  and  for  part  "gross**  returns.  However, 
this  fact  does  not  seriously  interfere  with  securing  a  review  of 
the  finance  of  the  period. 

The  striking  thing  to  note  is  that  eliminating  all  items 
having  to  do  with  the  debt,  the  other  expenses  were  entirely 
met  from  revenue  collections.  The  expenses  of  civil  govern- 
ment averaged  £6,708,000  a  year  and  the  military  expenses 
^39>2i3>ooo,  an  aggregate  of  about  46  million.  The  revenue 
receipts  averaged  £49,575,000  a  year;  or,  taking  the  aggre- 
gate figures  for  the  24  years,  civil  and  military  expenses  were 
£1,117,656,000  and  revenue  receipts  were  £1,202,195,000. 

It  was  during  this  time  that  pamphlets  without  number 
were  being  issued  from  the  press  in  regard  to  the  debt,  its 
great  and  growing  burden,  the  necessity  for  the  cost  of  wars 
being  met  by  the  generation  which  carried  them  on  and  the 
blessings  and  operations  of  the  sinking  fund. 

The  borrowing  which  took  place  provided  the  means  for 
temporarily  bridging  gaps  between  expenditure  and  revenue, 
for  meeting  the  interest  charge  on  the  inherited  debt  and  for 
feeding  the  sinking  fund  which,  strange  to  say,  was  adding  to 
the  debt  instead  of  reducing  it.  For  the  24  years  the  charge 
for  the  interest  and  management  of  the  debt  was  £511,306,- 
000 — £227,655,000  on  account  of  pre-war  debt  and  £283,- 
651,000  on  account  of  new  debt. 

The  operations  on  account  of  the  debt  ran  into  heavy 
figures  as  will  be  seen  from  an  examination  of  this  table. 


ENGLISH  PUBLIC  FINANCE  f  I3I 

SUMMARY  OF  DEBT  OPERATIONS 

Great  French  Wars 

October,  1792 — February,  1817 

In  Millions  Sterling 

Credits     Debits 

Money  Values  £  ^ 

Gross  amount  borrowed i>3i5        •  •  •  • 

Disposition: 

Debt  paid  off    .     . ^^^ 

Interest  and  management  on  new  or  war 

debt 283 

Net  benefit  to  Exchequer  from  war  borrow- 
ings      •     ^51 

1.315       1.315 

Thus  the  net  benefit  to  the  Exchequer  from  net  borrow- 
ings of  £434  million,  money  values,  was  only  £151  million, 
iiK%  of  the  gross  amount  borrowed,  sufficient  with 
say  £77  million  from  revenue  to  pay  the  charge  of  £227,655,- 
000  for  the  pre-war  debt. 

In  1793  the  total  debt  was  £239,663,000.  On  the  5th  of 
January,  1817,  it  was  £850,000,000,  an  increase  of  £610,- 
337,000 — par  value.  The  debt  charge  meanwhile  had  in- 
creased £22,623,000,  from  £9,432,000  to  £32,055,000.  Mr. 
Chisholm,  in  his  monumental  report  on  the  debt,  estimates 
that  of  the  net  amount  borrowed  during  this  period  about 
one-third  —  say,  £192,868,000 — was  required  for  the  sink- 
ing fund.  The  annual  charge  for  interest  on  the  new  money 
borrowed  was  £5  3s  9d  per  cent.,  while  the  similar  charge 
on  the  debt  redeemed  by  the  sinking  fund  was  £4  i6s  8d  per 
cent.  The  difference  between  the  two  rates  of  interest,  equal 
to  7s  id  per  cent.,  is  the  annual  amount  lost  by  the  sinking 
fund  operations  on  the  £192,868,000  redeemed;  or,  at  the 
rate  of  about  £683,000  added  fixed  charge  per  annum. 


t 


132 1 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[133 


1 


4 


Bebt  vs.  National  Wealth 

The  burden  of  the  debt  upon  the  community,  while  heavy, 
was  by  no  means  "crushing,"  a  term  by  which  it  has  fre^ 
quently  been  described. 

The  per  capita  debt  was  about  fifty  pounds  steriing,  or 
not  quite  one-third  of  the  estimated   per  capita  national 

t\  1 1^"  ''^'^  ^^  '^'  ^"^^"^^"  War,  another  period 
when  the  debt  was  "crushing,"  the  per  capita  amount  was 
estimated  at  about  £29  and  the  debt  at  about  25  per  cent, 
valuers  ""^  '^^^''^*     ^^^'^  estimates  all  deal  with  par 

Debt  Charge  vs.  National  Income 

On  account  of  the  policy  of  discount  financing  pursued  in 
the  negotiation  of  loans,  a  better  way  to  judge  of  the  actual 
burden  of  the  debt  is  to  institute  a  comparison  between  the 
annual  charge  for  interest  and  maintenance  and  the  estimated 
national  income.     The  growth  in  national  income  had  been 
very  great  since  the  beginning  of  the  American  War  in  177c 
At  that  time  the  national  income  was  estimated  to  be  £100  - 
000,000.  ^  At  the  close  of  that  war  an  increase  of  about  25  pJr 
per  cent,  is  estimated  to  have  taken  place.     At  the  beginning 
of  the  Great  French  Wars  the  people  of  England  were  probably 
m  receipt  of  an  aggregate  income  of  £160,000,000.     So  far 
our  estimates  apply  only  to  England  and  Wales.     In  1802 
we  may  add  Scotland  and,  too,  we  are  now  dealing  with  more 
reliable  figures,  as  we  begin  to  have  the  income  tax  returns  as 
a  basis.     We  seem  to  be  warranted  in  accepting  an  estimate 
of  £230,000,000  for  the  national  income  at  this  date.     At 
the  close  of  the  Napoleonic  wars  in  1815  we  have  an  esti- 
mated  income  for  the  17  million  people  of  the  United  King- 
dom  of  Great  Bntain  and  Ireland  of  £400,000,000. 


It  is  believed  these  estimates  fairly  reflect  the  facts,  for  we 
know,  notwithstanding  the  toll  of  the  wars,  that  the  popula- 
tion had  been  rapidly  increasing;  also  commerce,  as  evidenced 
by  the  increase  in  shipping  and  in  the  values  of  exported  and 
imported  goods;  also  the  volume  of  business,  as  evidenced  by 
the  steady  increase  in  the  yield  of  the  income  tax  and  the  fact 
that  the  people  at  the  same  time  were  able  to  pay  the  enor- 
mous excise  taxes. 

Therefore  we  seem  to  be  justified  in  accepting  them  as  a 
measure  of  the  burden  of  the  debt  at  the  times  indicated  and 
of  its  comparative  weight.  So  we  arrive  at  the  interesting 
summary  statement  contained  in  the  table  on  page  134.  In 
interpreting  this  table  the  fact  should  not  be  lost  sight  of  that 
the  purchasing  power  of  money  has  varied  considerably 
during  the  two  and  a  third  centuries.  The  relative  burden 
of  the  debt  cannot  be  judged  merely  by  comparative 
statistics  in  terms  of  money.  If  we  had  index  numbers  of 
prices  such  as  exist  today  covering  the  entire  period  and  could 
adjust  money  values  accordingly  we  would  probably  discover 
that  today's  burden  is  relatively  not  materially  greater  than 
at  other  crucial  periods. 

This  table  demonstrates  in  a  striking  manner  why  it  was, 
notwithstanding  all  the  direful  prophecies  of  disaster  which 
were  made  at  all  of  these  periods,  that  after  each  war  England 
shook  herself  like  a  great  ship  coming  up  out  of  the  trough  of  a 
stormy  sea  and  went  on  her  way  unscathed.  That  reason 
was  because,  although  one  of  the  oldest  of  the  nations,  she 
was  nevertheless  full  of  vitality  and  rapidly  growing  in  popu- 
lation and  in  material  resources.  Students  of  this  period 
point  out  that  because  of  the  integrity  of  property  and  con- 
tracts in  England,  she  became  to  an  important  degree  during 
the  great  war  the  custodian  of  the  savings  of  Europe.     Thus 


1 


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ENGLISH  PUBLIC  FINANCE 


[13s 


she  was  enabled  to  finance  her  trade  on  an  ever  increasing 
scale  as  well  as  to  finance  the  stupendous  costs  of  the  23  years 
of  war.  Sowing  and  reaping  in  national  finance  is  thus  illus- 
trated. 

Another  moral  phase  of  the  situation  which  cannot  be 
tabulated  but  which  is  at  the  base  of  England's  credit 
structure,  is  that  not  once  apparently  was  there  even  a 
thought  of  repudiation — even  when  the  burden  of  debt 
pressed  heaviest.  Fears  there  were  in  plenty  of  the  ability 
of  the  nation  to  continue  to  meet  its  obligations,  but  never 
once  a  suggestion  of  trying  to  get  rid  of  the  obligations  in  any 
other  way  than  the  good  old-fashioned  one  of  paying. 


ENGIISH  PUBLIC  FINANCE 


[137 


Chapter  XXI 

Revenue  and  Expenditure 
(1688-1817) 

TOURING  the  centuries  which  preceded  the  English  Revo- 
-L^  lution  of  1688,  the  EngHshman  had  held  the  reins  over 
his  autocratic  rulers  and  had  finally  won  a  state  of  compara- 
tive political  freedom  by  his  control  of  the  purse. 

The  King's  hereditary  revenues  were  passed  on  from  one 
sovereign  to  the  next,  also  those  of  which  it  was  customary  for 
Parliament  to  make  a  life  grant  at  the  beginning  of  each  reign. 
However,  Parliament  retained  absolute  control  over  other 
sources  of  revenue  which  it  voted  from  year  to  year.  Thus, 
by  making  it  necessary  for  the  King  to  call  them  together  to 
vote  at  least  a  part  of  the  supplies,  the  Commons  were  able 
to  control,  to  some  extent  at  least,  the  acts  of  the  King. 

When  William  III  consented  to  assume  the  responsibilities 
of  the  throne  in  1688  he  expected  that  the  usual  grants  would 
be  made  to  him.  To  this  Parliament  in  part  demurred.  No 
change  was  made  in  respect  of  the  hereditary  revenues,  but 
Parliament  declined  to  make  the  usual  life  grants.  Instead, 
the  revenues  usually  so  granted  were  made  renewable  at  the 
end  of  four  years. 

Thus  was  confirmed,  or  more  properly  reasserted,  the 
principle  of  a  short  grant  of  some  considerable  branch  of  the 
revenue  with  a  view  to  keeping  the  sovereign  dependent 
upon  the  will  of  Parliament. 

It  is  not  our  purpose  to  consider  in  detail  the  various  forms 
of  State  expenditure,  nor  do  we  intend  to  take  up  in  detail 
136] 


the  methods  of  raising  revenue  during  the  period  under  re- 
view. 

Purposes  of  Expenditure 

The  broad  general  purposes  of  expenditure  were,  as  they 
are  to-day,  the  expenses  of  civil  government,  the  expense  of 
the  maintenance  of  the  military  establishment  and  the  charge 
for  the  interest  upon  the  national  debt. 

An  inspection  of  the  table  on  page  138  will  show  how 
these  expenses  grew  from  one  historical  period  to  another. 

The  table  is  arranged  to  show  the  average  annual  expen- 
diture for  each  period  of  peace  and  of  war  from  the  Revolu- 
tion until  the  end  of  the  French  wars,  and  for  the  peace  period 
immediately  following. 

The  important  facts  to  notice  are  the  progressive  increas- 
ing expense  of  each  war  period  and  the  fact  that  after  each 
war  the  level  of  peace  expenditure  is  raised. 

The  Growing  Burden 

It  will  be  observed  that  the  war  period  of  the  reign  of 
William  III  cost  on  the  average  about  five  million  pounds  a 
year.  The  militaristic  administration  of  Anne  cost  half  as 
much  again.  During  the  Seven  Years  War  the  expenses  were 
double  those  of  Queen  Anne's  reign.  During  the  American 
War  they  were  fifty  per  cent,  higher  than  during  the  Seven 
Years  War.  For  the  first  part  of  the  Great  French  War  the 
expenses  were  double  those  of  the  American  War  period, 
while  the  expenses  of  the  last  part  of  the  French  war  aver- 
aged nearly  twice  those  of  the  first  part.  With  these  figures 
m  mind  let  us  now  turn  to  the  record  of  the  intervening  peace 
periods.  Here  we  find  this  interesting  sequence — ^we  will  use 
round  figures.      Following  the  peace  of  Ryswick  in  1697, 


1; 


* 


u 


m 


if  H 


'  1 


138] 


BANKERS  TRUST  COMPANY 


the  average  annual  budget  was  £3,80x5,000;  after  the  peace 
of  Utrecht  in  1713,  about  £5,700,000;  after  the  peace  of 
Aix  la  Chapelle  in  1748,  £6,600,000;  following  the  peace 
of  Paris  in  1763,  £9,900,000;  after  the  peace  of  Versailles 
in  1783,  £16,600,000;  while  looking  ahead  into  the  next 
period  we  find  that  for  the  years  immediately  following  the 
peace  of  Paris  in  18 15,  peace  expenses  rose  to  a  new  level 
of  £56  million  a  year. 

It  is  true  that  a  most  important  part  of  the  growing  cost 
of  government  was  due  to  the  cumulative  effect  of  the 
charge  for  the  growing  public  debt.  Again  it  seemed  to  be 
considered  necessary  after  each  war  to  maintain  the  military 
establishment  on  a  new  level  of  expenditure.  Still,  even  the 
expense  of  civil  government,  the  strictly  peace  establishment, 
exhibited  the  same  tendency  to  expand.     The  table  follows: 

GOVERNMENT  EXPENDITURES  1688-1830 
Average  per  Annum  for  Alternate  Periods  of  War  and  Peace 

In  Millions  Sterling 


Period 


1688-1697 
1698-1701 
1702-1714 

1715-1739 

1 740- 1 749 

1750-1755 
1 756- 1 766 

1 767- 1 775 
1 776- 1 785 
1 786- 1 792 

1 793- 1 802 
1803-1817 
1818-1830 


Character  of  Period 


Wars  of  William  III      .     .     . 

Peace 

Wars  of  Anne 

Peace 

Spanish-Austrian  Wars 
Peace       ....... 

Seven  Years  War     .... 

Pecu:e 

American  War         .... 

Peace 

1st  Period— Great  French  War 
2nd  Period — Great  French  War 
Peace 


Peace 


3.8 

.    a    • 

5.7 

... 

6,6 

•  * . 

9,9 

... 

16,6 

•  •  • 
... 

56,2 


War 


5»i 

... 

7.6 
9.5 

.  •  • 

I4f5 

... 

21,8 

•  •  • 

45>4 
80,5 


ENGLISH  PUBLIC  FINANCE 


[139 


Sources  of  Income 

Let  us  now  turn  to  the  other  side  of  the  account  and  see 
from  what  sources  the  income  was  derived  with  which  to 
meet  these  constantly  growing  expenditures.  Here  we  have 
some  surprises  awaiting  us,  particularly  when  we  come  to  the 
period  of  the  Great  French  War.  Again  we  will  deal  with 
the  average  annual  figures,  as  this  is  the  only  way  in  which  we 
can  make  a  comparative  study.  Taking  first  the  revenue 
from  other  sources  than  borrowing,  we  find  that  the  excise 
taxes  were  most  productive,  then  the  customs  and  then  the 
land  and  house  duties.  The  stamp  taxes  first  began  to  be  of 
importance  in  the  period  following  the  American  War.  Dur- 
ing the  second  part  of  the  Great  French  War  the  income  tax 
assumed  great  importance,  yielding  almost  as  much  as  the 

customs. 

Now  we  come  to  the  interesting  and  surprising  phase 
of  the  situation.  From  the  stress  which  has  been  put 
upon  the  growth  of  the  debt  it  might  be  assumed  that 
the  greater  part  of  the  cost  of  the  wars  and  of  the  growing 
expenses  of  all  kinds  had  been  obtained  by  mortgaging 
the  future.  As  a  matter  of  fact,  just  the  reverse  is  true. 
Most  surprising  of  all,  the  really  stupendous  expenses  of 
the  Napoleonic  war — the  second  half  of  the  Great  French 
War  period — were  met  chiefly  from  taxation,  the  exact 
percentages  being  79.70  from  taxation  and  20.30  from 
borrowing. 

The  table  of  Government  income  following,  prepared  to 
cover  the  same  historical  periods  as  in  the  case  of  the  Ex- 
penditure table,  may  be  studied  with  profit. 


t 


i4ol 


BANKERS  TRUST  COMPANY 


ill 


1 


m 


GOVERNMENT  REVENUE  1 688-1 830 
Average  per  Annum  for  Alternate  Periods  of  War  and  Peace 

In  Millions  Sterling 


Period 

Character  of  Period 

Peace 

War 

Tax 

Tax 

Debt 

Total 

Tax 

Debt 

1688-1697 
1 698- 1 70 1 

Wars  of  William  III 
Peace     .      .      .      . 
Wars  of  Anne  .      . 
Peace      .... 

Spanish-Austrian 
Wars     .... 
Peace     .... 
Seven  Years  War  . 

£ 
'  4,6' 

£ 
3,6 

£ 
1,8 

£ 
5,4 

or 
/o 

66.43 

% 
33.56 

1702-1714 

5,4 

2,3 

77    1    ^r^    fr- 

1715-1739 

6,9 

•»■ 

'^y-oo 

30.40 

1 740- 1 749 

1 750- 1 755 
1 756- 1 766 

6,6 
9,1 

•    •    •   •    . 

3,0 
5,5 

9,6 
14,6 

68.91 
62.62 

31-08 

1767-1775 

Peace     .... 
American  War 

10,7 

37.37 

1 776- 1 785 

12,7 

9,4 

22,1 

57.39 

42.61 

1 786- 1 792 

Peace     .... 
1st  Period  iFrench 
2nd  Period/  War 
Peace     .... 

17,0 
68,0 

I 793- I 802 
1803-1817 
1818-1830 

26,2 
64,4 

20,9 
16,4 

47.1 
80,8 

55.60 
79.70 

44.40 
20.30 

" 

•   ••••• 

Chapter  XXII 

Peace  and  Social  Betterment 

(1817-1914) 

WE  have  just  been  studying  the  finances  of  a  period  the 
dominating  note  in  which  was  war.  It  was  also  the 
period  when  the  greater  part  of  the  English  debt,  as  it  stood 
prior  to  the  recent  world  cataclysm,  was  created.  We  now 
enter  upon  the  study  of  a  period  where  peace  was  dominant. 
During  the  century  there  were  two  important  wars  and  a 
number  of  military  expeditions,  but  as  these  were  all  fought 
at  a  distance,  they  scarcely  interrupted  the  course  of  events  at 

home. 

The  period  is  one  of  intense  interest  to  the  social  reformer, 
to  the  economist  and  to  the  publicist.  For  the  student  of 
public  finance  it  is  chiefly  memorable  as  a  time  within  which 
the  methods  of  taxation  were  greatly  simplified.  A  dis- 
tinguished succession  of  finance  ministers,  notably  Peel, 
Disraeli  and  Gladstone,  introduced  and  successfully  estab- 
lished innovations  in  State  finance  of  far-reaching  importance. 

Sources  of  Revenue — Tariff  Reform 

During  this  period  England  was  transformed  from  a  coun- 
try surrounded  by  high  tariflF  walls  to  one  practising  free 
trade  in  its  most  extreme  form.  From  the  standpoint  of 
finance  this  resulted  in  reducing  the  number  of  classes  of  com- 
modities upon  which  customs  duties  were  collected  from  1200 
in  1842  to  466  in  1853,  and  to  only  48  in  i860.  By  1880  the 
number  of  classes  of  articles  upon  the  tariff^  had  been  reduced 
to  ten.  In  1914  substantially  the  entire  customs  revenue  was 
141] 


1 

.1 


ill! 


ifll 


m 


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H 


1^ 


!  i 


ill 


142] 


BANKERS  TRUST  COMPANY 


derived,  in  the  order  named,  from  tobacco,  tea  and  sugar  and 
from  spirits  in  various  forms,  including  motor  spirits;  although 
cocoa  and  its  preparations,  and  coffee,  together  yielded  almost 
as  much  as  spirits.  Notwithstanding  this  radical  change  in 
the  customs  tariff,  the  revenue  from  this  source  remained 
fairly  uniform  during  most  of  the  period,  but  with  a  marked 
tendency  to  increase  during  and  following  the  period  of 
the  Boer  War.  The  income  from  the  excise  taxes  steadily 
increased  during  the  century.  The  remaining  important 
sources  of  revenue  were  the  income  and  property  tax,  the 
estate  duties,  and  the  stamp  taxes.  The  income  tax  was 
discontinued  at  the  close  of  the  French  Wars  to  be  reimposed 
in  1843  and  has  been  of  growing  importance  ever  since, 
finally  becoming  the  most  important  source  of  tax  revenue 
in  the  financing  of  the  recent  war. 

Character  of  Expenditure 

Turning  now  to  the  purposes  for  which  the  money  of  the 
State  was  expended  during  this  century  we  face  a  situation 
of  great  interest. 

First  of  all  we  find  that  the  expenditure  for  the  payment 
of  the  interest  upon  the  debt  in  the  fiscal  year  ended  March  31, 
1914,  was  £24,500,000,  a  reduction  of  only  £8,400,000  from 
the  year  1817  when  the  maximum  charge  was  reached,  show- 
ing that  no  determined  effort  had  been  made  during  this  long 
period  of  comparative  peace  to  get  rid  of  this  burden. 

Military  Expenditure 

In  the  next  place,  we  discover  that  the  military  expendi- 
ture steadily  grew  during  the  entire  period.  The  Crimean 
War  cost  £73  million,  or  at  the  rate  of  over  £24  million  a 
year   for   the   three   years    (1854-185 7)    affected    by    the 


ENGLISH  PUBLIC  FINANCE 


[143 


financing  of  that  war;  but,  eliminating  this  special  feature^ 
we  find  the  cost  of  the  mihtary  establishment  in  time  of  peace 
steadily  mounting,  until  in  the  four  years  preceding  the  Boer 
War  it  averaged  over  £40  million;  more  than  the  average 
military  expense  during  the  Great  French  War,  although  some 
five  million  less  than  during  the  most  expensive  period  of  that 
war.  The  Boer  War  cost  £281  million,  bringing  the  entire 
military  expense  for  the  period  (1899- 1903)  up  to  £70  million 
a  year.  However,  for  the  peace  period  of  over  ten  years  fol- 
lowing that  war  the  military  burden  averaged  annually  over 
50  per  cent,  higher  than  it  had  averaged  in  the  four  years 
preceding  the  war.  In  the  fiscal  year  ended  March  31,  1914 
the  military  establishment  cost  over  £77  million. 

Civil  Government  Expenditure 

Let  us  see,  now,  what  the  statistics  of  the  cost  of  civil 
government  show,  eliminating  after  1870  expenditures  for 
postal  services,  because  these  were  offset  by  a  corresponding 
or  greater  income.  We  find  that  the  record  can  be  allocated 
roughly  to  three  periods.  Down  to  the  time  of  the  Crimean 
War  (i 854-1 856)  these  expenditures  called  on  the  average  for 
about  nine  million  pounds  a  year,  increasing  during  the  last 
decade  to  about  ten  million.  They  then  reached  a  new  level, 
ranging  from  an  average  of  about  £12,500,000  during  the 
period  of  the  war  to  an  average  of  slightly  under  £23  million 
during  the  five  years  of  Gladstone's  administration  ending  in 
1874. 

Thereafter  they  mounted  rapidly  until  in  1914  they  had 
reached  over  £75  million  or  substantially  the  same  as  the 
military  expenditure.  They  had  run  neck  and  neck  with  the 
military  expenditure  for  the  previous  six  years. 

The  following  table  will  visualize  this  last  statement : 


V     I 


f% 


]\  w 


144 1 


BANKERS  TRUST  COMPANY 


CIVIL  GOVERNMENT  vs.  MILITARY  EXPENDITURE 

In  Millions  Sterling 
Years  Ended  *Civil        Military 

March  31  £  £ 

^909 49,7  59,0 

^910 55,7  63,0 

191 1 60,9  67,8 

^912 67,4  70,5 

1913 70,1  72,4 

1914 75,2  77,2 

•Postal  expenses  eliminated. 

The  explanation  of  this  steady  increase  in  the  cost  of  civil 
government  is  to  be  found  in  the  awakening  of  the  civic  con- 
science to  the  duty  of  the  State  to  its  citizens.  As  we  have 
already  noted,  in  1839  Parliament  for  the  first  time  voted  a 
small  sum  for  public  education.  By  1854  ^he  expenditure  for 
this  purpose  reached  £559,000 — twenty  years  later  it  was 
more  than  four  times  as  great.  In  another  twenty  years  the 
expenditure  for  this  purpose  had  again  quadrupled,  while  in 
1914  it  was  over  nineteen  million  pounds,  twice  the  1895 
amount.  To  complete  the  record  we  may  note  that  this 
sum  had  again  doubled  in  the  year  ended  March  31,  1920 
and  that  the  budget  figure  for  the  current  year  (1920-21)  is 
£56  million.  The  introduction  of  old  age  pensions  in  1908 
and  of  health  insurance  in  191 1  added  another  simi  ar  amount 
to  the  annual  expenditure  by  1913-1914,  and  these  expendi- 
tures tend  to  increase  in  almost  a  spectacular  way.  For 
example,  in  1919,  with  scarcely  a  word  of  objection,  old  age 
pensions  were  increased  by  Parliament  by  an  estimated  annual 
sum  of  about  £10  million,  bringing  up  the  estimated  future 
annual  expenditure  for  this  purpose  to  about  £28  million. 

The  following  table,  giving  the  distribution  of  the  civil 
government  expenditure  at  the  end  of  historical  periods  from 
1833  to  1914  inclusive,  offers  further  interesting  data. 


W 
Pi 
P 
H 

t-H 

Q 
M 

X! 

w 

H 

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w 

> 

o 
(J 


> 

U 


o 

u 

"IS 

u 


o 

0^ 


2"  o  (/) 


I 

CO 

00 


CO    J2 

*-•   S 
^  .2 

O 
0 


u 
O 


ENGLISH  PUBLIC  FINANCE 


03 
+-> 
O 


0) 

o 


03 


C    0) 
0)   u 


y   3   W   C    Q*  CL  3 


0) 


U   ^QC   S 


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o 


o  c  2  > 
•5  «»  o  ij 


=5.9  S  C  !3 


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<^   X   'P,   ^u  -i^ 


O    U3 


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en 


3-P   5   ^^   C 


c3  Ji  fl> 


00  l^  rO 

•«  9^  •« 

CO  CO  ''d- 


»0  -^  CO 

•^         *»        ^ 

000 


COCO 

o  o 


10 1^ 

o  o 


00  rt-»0 

■k  «h  Vh 

•-•WW 


rO  •-•  vO  O^  *-•  00 

•b        •«        ah        ^        <^         9h 

10  ir>  w  CO  CO  o> 

M   M   rf  CO  t^  ON 


00  r^  r^oo  vo  vo 

«i^         •«         «k         »«         ^         v^ 

•i   (S 


CO  CO  CI  00  00^ 

rCvc*  '«*•  rC  CO 


00  vO  t^vO  O   10 

•k  «h  V^  «h  ^  ^ 

rf  W  M  W  CO  -^ 


CO  GnOO  00  vO   N  O   O  »-• 


ON 


lOvO  vO  t^  CO  »0 
O  O  O  O  co^-i 


cOiO  Th  Tf  M  t>»  CO  rf 

00  •-•CIIOGncOCn 


ON  CO  M  vO  00  iC 

0%         •%         •%         *k  *k         w 

M   'i-vO   CO  CO  "^ 


iTi  0\  "rt  O  10  CO 

«h        •»        *»        ^        *^        *^ 

»-••-•   W   W   W   -^ 


COMOO  oO'-'t^l^cOcO 

000  o*^^*^^^ 


00  vo  vO  vO  vO  •-• 
«    «>    .k    »    »    ^ 

l_l     fl     HH     H4     •-•     CO 


,^  CO  ri  "^ 

.  00  00  00 

C;     »H     M     H4 

cd 


CO  t^  '^t'vO  »0  CO  rj- 
.  vO  t>»oO  ON  O  •-' 
^  00  00  OC  00  ON  On 

(J    IM    I.H    |i^    H4    M    1-4 


[14s 


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a 

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t: 

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«  5  fi 
•a  >  Si 

^  Qi 

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S  W.T3  O 

^  o  daq 
*©  o  ajj 

S  ®  ** 
«  3  o  a 


»  +-♦+ 


146] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[147 


!(P 


Therefore,  to  sum  up,  we  find  that  the  striking  facts  con- 
nected with  public  finance  in  the  history  of  the  century  lying 
between  the  two  great  wars  were  these:  A  revision  of  the 
tariff  and  revenue  laws  to  promote  freedom  of  trade  and  to 
provide  the  means  for  great  social  reforms,  a  failure  to  bring 
about  a  radical  reduction  in  the  debt  and  a  steady  increase  in 
military  expenses,  even  during  a  prolonged  period  of  an  al- 
most complete  absence  of  war. 

T>ebt — Refunding 

Since  1 81 7  several  refunding  operations  have  been  carried 
through.  The  most  important  of  these  operations,  and  the 
only  one  to  result  in  a  saving  commensurate  with  the  effort, 
was  that  made  by  Mr.  Goschen  in  1888  and  1889  when  some 
£565  million  three  per  cents  of  various  issues  were  refunded 
into  2^  per  cent,  consols  at  a  saving  of  £1,411,000  a  year.  In 
accordance  with  the  terms  of  issue  the  interest  rate  on  these 
consols  became  2^  percent,  after  1903.  These  are  the  consols 
of  today.  Mr.  Gladstone  had  previously  endeavored,  in  1853, 
to  effect  a  somewhat  similar  operation  but  the  conditions  at 
the  rime  were  unfavorable  to  the  success  of  the  undertaking. 
An  operation  undertaken  in  1884  was  likewise  unsarisfactory 
in  its  final  outcome,  as  it  resulted  in  a  saving  of  only  £46,756 
a  year  on  some  £22,362,000. 

Some  Comparisons 

On  January  5,  1817,  the  debt  stood  at  £850  million.  The 
fixed  charge  for  interest  and  management  at  that  time  was 
about  £32  million.  In  this  amount  was  included  the  sum  of 
about  £2  million  annuity  payments.  It  has  for  many  years 
been  customary  for  Treasury  officials  in  making  statements 


of  the  debt  to  capitalize  the  annuity  payments.  This  hardly 
seems  a  proper  method  for  1 817  as  the  annuities  being  paid  at 
that  period  were  really  bonuses,  or  additional  interest,  and 
represented  no  expenditure  of  capital.  However,  if  to  agree 
with  the  Exchequer  method  of  today  we  roughly  calculate  the 
capital  value  of  the  annuities  outstanding  in  18 17  at  fifteen 
years  purchase,  or,  say,  £30  million,  this  would  bring  up  the 
par  value  of  the  debt  in  1817  to  £880  million,  equivalent  to 
about  £52  per  head  of  population. 

In  1817  the  national  wealth  was  estimated  to  be  £2,700 
million,  about  £159  per  capita.  Therefore  the  national  debt 
at  that  time  was  almost  one  third  of  the  national  wealth. 
In  1914  the  national  wealth  was  estimated  at  £14,500  mil- 
lion, say,  £315  per  capita.  The  debt,  which  was  then  £711 
million,  was  thus  less  than  5  per  cent,  of  the  wealth.  The 
fixed  charge  at  the  earlier  date  was  8  per  cent  of  the  estimated 
national  incomeof  £400  million,  while  at  the  latter  date  it  was 
only  a  trifle  over  one  per  cent,  of  the  estimated  national 
income  of  £2,250  million.  Therefore  the  growth  in  population, 
in  wealth  and  in  earning  power  had  made  the  burdensome 
debt  of  1817  a  very  unimportant  affair  by  1914. 

Again,  the  expenditures  of  the  Government  for  all  pur- 
poses amounted  ini8i7  to £71  million,  about  18  per  cent,  of 
the  national  income;  in  1914  the  expenditures  of  the  Gov- 
ernment had  risen  to  £212  million  but  this  amount  was  not 
quite  9^  per  cent,  of  the  estimated  national  income. 

Casting  these  figures  into  tabular  form  we  arrive  at 
the  following  statement.  It  should  be  borne  in  mind  that 
national  income  is  the  estimated  income  of  the  British 
people  as  a  whole,  not  the  revenue  of  the  Exchequer.  This 
latter  would  be  substantially  the  same  as  the  Government 
expenditure. 


«l 


t< . 


u^ 


If 

,  'V- 

1 1 

( 


i«|i 


w  m 


148] 


BANKERS  TRUST  COMPANY 


THE  FISCAL  CHANGES  OF  A  CENTURY 
Grand  Totals,  Expressed  in  Millions 

Italics  indicate  decreases 


Date 

Popl. 

Natl. 
Wealth 

Debt 

Debt 
Charge 

Natl. 
Income 

Gov't 
Expend. 

Jan.   1817 
Aug.  1914 

17 

46 

2,700 
14,500 

850 
711 

32 
24 

400 
2,250 

71 
212 

Changes 

29 

11,800 

IJQ 

8 

1,850 

141 

Stated  Per  Capita  and  Percentage 


Date 

Natl. 
Wealth 

Debt 

Natl. 

In- 

come 

Debt  Charges 

Gov't 
Expenditure 

Per 

Cap. 

Per 
Cap. 

% 
Wealth 

Per 
Cap. 

Per 

Cap. 

% 

Income 

Per 
Cap. 

% 
Nat'l 

Income 

Jan.   1817 
Aug.  1914 

£ 

159 
315 

£ 

50 

15 

31.5 
4.9 

£     s 
23  II 
49  - 

£    s 
I  17 
0  10 

8.0 
10.6 

£   s 

4    4 
4    7 

18.0 
9.4 

Changes 

156 

3S 

26.6 

25  9 

I    7 

2.6 

3 

8.6 

In  words  of  Sir  Stafford  H.  Northcote,  writing  in  1862,  the 
great  advance  of  the  British  nation  from  1 81 7  to  1 914  may  be 
summed  up  as  due  "to  the  progress  of  science,  and  its  appli- 
cation to  all  the  arts  of  life,  the  development  of  the  railway 
system,  the  improvements  in  agriculture  and  manufactures, 
the  discoveries  of  gold  and  the  impulse  given  to  colonization." 
To  these  general  causes  he  added  the  great  improvement 


ENGLISH  PUBLIC  FINANCE 


[149 


which  had  taken  place  in  the  fiscal  administration.  Since  the 
time  when  he  wrote  has  come  the  age  of  electricity  with  the 
wonderful  impulse  which  it  has  given  to  the  arts  and  sciences, 
especially  as  applied  to  the  material  well-being  of  the  nation; 
the  tremendous  advance  in  transportation  methods,  on  land 
and  sea  and  now  in  the  air;  the  intensive  methods  of  produc- 
tion; improvements  in  finance  and,  as  an  impressive  result 
of  the  recent  war,  the  welding  together  of  the  constituent 
political  units  of  which  the  Empire  is  composed  into  a  unified 
whole,  one  nation  in  sentiment  and  purpose  composed  of 
many  separate  political  units. 

The  history  of  public  finance  in  England  during  the  crucial 
period  of  the  World  War  has  already  been  related. 


m 


ff 


ENGLISH  PUBLIC  FINANCE 


tisi 


i 


Ji 


I 
i 

m 


Chapter  XXIII 
The  Ancient  Exchequer 

^HERE  is  every  evidence  that  the  early  kings  had  in 
-^  use  well  developed  methods  of  administering  their  fi- 
nances. 

TAe  Exchequer 

The  Exchequer  was  the  place  where  the  King's  revenue 
was  received,  where  it  was  kept,  supervised  and  controlled 
and  from  whence  it  was  issued.  There  were  three  officers  of 
the  Exchequer,  each  of  whom  had  control  over  the  issue  of 
the  money.  The  money  was  kept  in  chests,  each  chest  having 
three  locks  and  each  of  these  officers  having  his  key  to  one  of 
the  locks.  One  of  these  officers  called  the  Teller,  was  the 
qashier  who  received  the  money;  then  there  was  the  Clerk  of 
the  Pells,  who  recorded  on  a  pell  or  parchment  all  receipts 
and  issues;  finally  there  was  the  Auditor,  who  examined  the 
records  and  whose  duty  it  was  to  see  that  no  money  was 
issued  except  in  accordance  with  the  law,  and  with  the  sanc- 
tion of  Parliament. 

This  system  existed  until  well  into  the  nineteenth  century, 
although  certain  changes  were  of  course  made  in  respect  to 
the  actual  custody  of  the  cash.  In  1834  the  whole  system 
for  the  administration  of  the  public  finances  was  revised 
and  modernized. 

TAe  Accounting 

The  King's  revenues  were  collected  by  the  i?herifFs  and  by 
them  were  twice  a  year,  at  Easter  and  at  Michaelmas  (the 
day  after  the  feast  of  St.  Michaels,  about  the  end  of  Sep- 
tember)  paid  to  the  King's  treasury. 
150] 


On  the  appointed  day  the  sheriffs  would  bring  their  ac- 
counts and  the  money  which  they  had  collected  to  the  hall 
in  which  the  settlements  were  to  be  made,  known  as  the  Re- 
ceipt of  the  Exchequer.  Upon  entering  the  hall  the  Sheriff 
would  see  at  the  farther  end  a  table,  about  ten  feet  in  length 
and  five  in  breadth,  covered  with  a  black  cloth  which  was 
divided  by  white  lines  into  squares  about  a  handbreadth  in 
width.  It  was  this  chequered  cloth  which  gave  name  at  once 
to  the  system  of  accounting  and  to  the  place  of  meeting  and 
which  persists  to  this  day  as  the  designation  of  the  English 
treasury. 

Seated  on  a  bench  to  the  right  of  the  table  clothed  in  their 
scarlet  robes,  the  Sheriff  would  see  the  Bishop,  the  Justiciar 
who  represented  the  King,  and  the  Chancellor  of  the  Excheq- 
uer; also  the  Constable  and  several  Chamberlains  or  cour- 
tiers. Seated  at  the  far  side  of  the  table  were  the  Treasurer 
and  the  scribes  or  clerks.  Facing  them  were  the  calculator 
and  the  cutter  of  tallies.  Seated  on  benches  arranged  around 
the  room  were  the  taxpayers,  watching  to  see  that  the  ac- 
counts as  they  affected  their  interests  were  correctly  stated. 
The  SheriiF  upon  approaching  the  table  would  place  on  it  his 
receipt  tallies  and  the  silver  coins  for  use  in  settling  his  ac- 
count. He  would  then  take  his  place  at  the  foot  of  the  table 
facing  the  Chancellor  and  other  dignitaries.  The  game  of 
chess  which  was  to  decide  his  indebtedness  then  proceeded. 

In  the  early  days  only  the  priests  and  monks  were  able  to 
read  and  write;  therefore  the  accounting  had  to  be  visualized. 
To  serve  as  counters  foreign  coins  were  used.  The  calculator 
would  place  the  coins  in  the  proper  spaces  on  the  chequered 
cloth  to  represent  the  Sheriff's  indebtedness.  Below  he  would 
place  the  silver  paid  in  by  the  Sheriff  and  counters  represent- 
ing any  credits  due  him.  Thus  was  visualized  the  state  of 


\i\ 


k\ 


tT  -'■ 


152  1 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


flS3 


i\i^f 


II 


the  account,  and  the  adjustments  required  to  effect  a  settle- 
ment could  be  readily  determined.  The  Chancellor's  scribes 
meanwhile  had  entered  a  statement  of  the  account  in  dupli- 
cate on  the  rolls  of  vellum  which  were  used  in  place  of  the 
paper  account  books  of  to-day.  A  tally — receipt — prepared 
by  the  tally  cutter  would  be  given  to  the  Sheriff  to  be  care- 
fully preserved  until  the  next  settlement. 

Tallies 

These  tallies  were  sticks  of  some  hard  wood  on  one  side  of 
which  notches  were  cutof  peculiar  shapes  and  sizes  correspond- 
ing to  the  figures  of  account  which  they  represented.  The  stick 
was  bored  near  one  end  so  that  it  could  be  filed  upon  a  rod. 
When  the  sums  paid  had  been  cut  on  the  two  edges  of  the 
stick,  and  the  name  had  been  recorded,  it  was  split  nearly 
to  the  bottom,  so  that  one  part  contained  a  stump  or  handle 
while  the  other  was  only  a  flat  strip.   The  larger  part  or  tally 
was  retained  by  the  Sheriff,  while  the  smaller  part  remained 
in  the  Treasury.   This  was  known  as  the  counter-tally  or 
counter-foil.  As  it  was  customary  for  the  Sheriff  to  make 
only  a  partial  settlement  at  Easter,  it  was  necessary  for  him 
to  bring  with  him  at  Michaelmas  his  Easter  tallies  in  order 
that  he  might  obtain  the  necessary  credits  in  making  his  set- 
tlement for  the  year.   The  validity  of  the  tallies  presented 
could  be  determined  by  comparing  them  with  the  counter- 
foil.  The  use  of  tallies  at  the  Exchequer  was  not  finally 
discontinued  until  1834.   On  the  loth  of  October  of  that  year 
we  read  in  the  GentlemarCs  Magazine  that  the  most  ancient 
revenue  department  in  the  State,  the  Receipt  of  the  Excheq- 
uer, terminated;  also  that    on    the   i6th    the    tallies  were 
burned,  and  on  the  same  day  the  houses  of  Parliament  were 
destroyed  by  fire.   The  presumption  was  that  the  flues  were 


overheated  on  account  of  the  great  fire  caused  by  the  burning 
tallies. 

The  use  of  tallies  has  left  a  permanent  imprint  upon  Eng- 
lish language  and  usages.  The  larger  part  of  the  tally  was 
sometimes  called  the  stock  and  the  smaller  part  the  foil. 
Down  to  about  a  hundred  years  ago,  if  one  lent  money  to  the 
Bank  of  England  or  to  the  Exchequer,  tallies  were  cut  for  the 
amount;  the  bank  kept  the  foil  and  the  creditor  received  the 
stock.  He  thus  held  "bank  stock"  or  "Exchequer  stock'* 
of  the  amount  recorded  upon  the  tally.  When  the  form  of 
cheque  was  adopted  it  is  true  that  it  was  not  called  a  foil,  but 
the  part  retained  by  the  payer  was  called  the  counter-foil 
and  the  word  "cheque"  itself  goes  back  ultimately  to  the 
same  root  as  "Exchequer. 


>> 


The  Ancient  Treasury 

The  taxes  in  the  early  days  were  frequently  paid  in  kind, 
as  well  as  in  money.  The  wealth  of  the  King  and  of  his  nobles, 
not  in  the  form  of  landed  property,  forests,  flocks,  herds  and 
the  like  was  represented  not  alone  by  money  but  by  gold  and 
silver  plate,  by  jewels  and  gems  and  by  richly  embroidered 
robes.  Such  articles  belonging  to  the  King  were  kept  in  his 
Treasury.  For  a  long  time,  wherever  the  King  went  the 
Treasury  also  went.  The  principal  treasuries  ultimately  came 
to  be  located  at  Winchester  and  at  Westminster  and  finally 
with  the  growing  importance  of  London  the  Treasury  was 
definitely  located  there. 

It  would  be  interesting  to  consider  here  the  methods  of 
administering  the  Treasury  in  the  early  days  and  the  duties 
of  the  officials.  However,  it  is  impossible  to  do  this  in  the 
space  at  our  disposal.  Therefore  we  will  proceed  at  once  to 
an  examination  of  the  system  now  in  use. 


ff 


i 


l*^ 


Chapter  XXIV 
The  Modern  Fiscal  System 

npHE  finances  of  Great  Britain  are  conducted  on  what  is 
-*•  known  as  the  budgetary  plan.    Briefly  stated,  this  plan 
involves  the  preparation  by  the  executive  of  a  "definite  plan 
or  proposal  for  financing  the  business  of  a  future  period  both 
with  respect  to  revenues  and  expenditures." 

T/ie  Budget 

The  policy  of  the  English  budget  is  settled  by  the  Chan- 
cellor of  the  Exchequer  and  the  details  worked  out  by  the 
permanent  staflF  of  the  Treasury.  The  budget  is  presented 
by  the  Chancellor  to  the  Commons  usually  in  April  or  May. 
Sometimes  a  supplementary  budget  is  presented  in  the 
Autumn.  Previous  to  the  presentation  of  the  budget  a 
financial  statement  containing  carefully  prepared  estimates 
of  revenue  and  expendi^re  is  placed  in  the  hands  of  each 
member  of  Parliament.  These  estimates  are  compared  with 
the  actual  expenditure  for  the  past  year,  also  with  the  esti- 
mates for  that  year.  At  the  time  of  presentation  the  Chan- 
cellor explains, — usually  in  great  detail — the  reasons  for  the 
proposed  expenditures  and  especially  for  the  proposed 
methods  of  taxation  or  borrowing  to  be  followed  in  obtain- 
ing the  revenues  necessary  with  which  to  meet  the  expendi- 
tures. Many  of  the  budget  speeches  have  been  notable  for 
their  lucidity  and  interest.  Gladstone's  budget  speeches  were 
among  his  greatest  eflForts.  Parliament  can  approve  or  reject 
the  recommendations  of  the  budget  but  does  not  add  to  its 

154 1 


ENGLISH  PUBLIC  FINANCE 


[ISS 


items  or  make  an  appropriation  in  excess  of  the  amount 
proposed. 

Certain  appropriations  are  of  a  continuing  or  permanent 
character,  such  as  those  for  the  support  of  the  King  and  his 
household;  the  interest  and  management  of  the  public  debt; 
the  salaries  for  the  higher  judicial  officers  and  the  regular 
annual  expense  of  the  military  establishment.  These  are 
designated  as  "Consolidated  Fund  Services."  Annual  appro- 
priations for  the  other  public  expenses  are  known  as  the 
"Supply  Services."  Appropriations  for  such  services  cannot 
be  made  *' unless  recommended  from  the  Crown."  That  is, 
unless  set  forth  in  the  budget.  This  puts  an  effective  check 
on  log-rolling  and  trading  and  upon  ill-considered  expendi- 
tures. So  carefully  are  the  estimates  of  expenditures  and 
receipts  made  that  in  normal  times  the  actual  results  vary  but 
slightly  therefrom. 

The  Exchequer — /.  e.  The  Public  Treasury 

The  Treasury  Department  controls  all  financial  operations 
of  the  Government  which  in  any  manner  affect  the  amount 
of  funds  that  Parliament  will  be  called  upon  to  vote  for  their 
support  or  the  expenditure  of  funds  when  granted.  Though 
termed  a  department  the  Treasury  is  technically  a  board. 
Prior  to  1714  the  head  of  the  department  was  known  as  the 
Lord  High  Treasurer.  In  that  year  the  office  was  put  in 
commission;  that  is,  while  the  office  remained  a  single  one 
provision  was  made  that  its  duties  should  be  performed  by  a 
board  consisting  of  a  First  Lord  of  the  Treasury  and  three 
Junior  Lords.  Though  this  board  has  continued  in  existence 
until  the  present  time  all  real  authority  has  in  fact 
passed  from  its  hands  into  those  of  the  Chancellor  of  the 
Exchequer. 


n^^'^-'^""'-* '"■■" -■"■--'■'-"■ 


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156 1 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[157 


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The  position  of  the  First  Lord  of  the  Treasury  is  usually 
held  by  the  Prime  Minister,  but  whether  this  is  so  or  not  this 
oflSicer  does  not  concern  himself  with  the  actual  management 
of  the  affairs  of  the  department  of  which  he  is  nominally  the 
chief  officer.  The  three  Junior  Lords  have  certain  minor 
duties  in  connection  with  the  Treasury,  but  their  real  duties 
consist  in  acting  as  assistants  to  the  Parliamentary  Secretary 
of  the  Treasury,  who  is  often  designated  as  the  chief  whip  of 
the  Government  in  the  House  of  Commons.  Thus  the  officers 
nominally  in  charge  of  the  Treasury  in  fact  pay  little  or  no 
attention  to  the  direction  of  the  affairs  of  that  department, 
but  concern  themselves  almost  entirely  with  parliamentary 
matters. 

The  Chancellor  of  the  Exchequer  and  His  Aids 

TTie  real  responsible  head  of  the  Treasury  is  the  Chan- 
cellor of  the  Exchequer.  He  is  assisted  on  the  parliamentary 
side  by  a  parliamentary  or  patronage  secretary  and  by  the 
three  Junior  Lords  of  the  Treasury.  On  the  administrative 
side,  he  has  as  his  chief  assistants  two  officers,  one  known  as 
Permanent  Secretary  to  the  Treasury  and  the  other  as  Per- 
manent Financial  Secretary.  These  officers  do  not  leave 
office  when  a  change  in  administration  takes  place.  The 
former  performs  the  duties  of  administrative  head  of  the 
department;  the  latter  has  immediate  charge  of  the  duties 
of  the  department  relating  to  the  exercise  of  its  powers  of 
financial  control  over  the  other  services.  To  enable  him  to 
perform  his  duties  the  Financial  Secretary  has  a  large  staff 
of  clerks. 

The  Treasury  consists  of  seven  divisions  with  a  principal 
clerk  at  the  head.    Among  these  divisions  is  distributed  the 


work  of  all  the  departments  of  State.  For  instance,  one  has 
the  Army,  the  Navy  and  the  Colonial  office;  another, 
the  legal  departments  and  the  Home  Office;  and  so  on.  All 
the  departments  of  State  have  their  work  distributed  to  a 
division  of  the  Treasury  and  every  paper  relating  to  a  de- 
partment goes  to  the  division  which  has  to  deal  with  that 
department  of  State.  Therefore  these  principal  clerks  at 
the  head  of  the  seven  divisions  are  the  people  who  consider 
the  general  questions  of  expenditure,  economy,  and  efficiency 
in  the  departments  of  State  which  relate  to  their  division. 
They  are  the  real  people  who  all  through  the  year  and 
changes  of  administration  are  considering  all  the  topics  that 
fall  to  the  work  of  their  respective  divisions. 

The  Consolidated  Fund 

In  1787  Parliament  provided  that  there  would  be  one 
general  fund  into  which  all  the  revenues  of  the  Crown  should 
be  put  and  from  which  all  disbursements  should  be  made. 
Prior  to  this  time  it  had  been  customary  to  allocate  certain 
definite  charges  against  each  of  the  principal  sources  of 
revenue.  It  is  stated  that  in  1785  there  were  no  fewer  than 
74  charges  involving  74  separate  accounts  imposed  upon  the 
customs  revenue,  while  the  militia  charges  were  defrayed  from 
the  land  tax  and  certain  hereditary  annuities  were  met  out 
of  the  post  office  revenues.  To  correct  this  situation  the 
"Consolidated  Fund  Act*'  was  passed.  A  similar  act  was 
passed  in  18 16  in  reference  to  revenues  and  expenditures  of 
Ireland  and  the  two  consolidated  funds  were  further  consoli- 
dated into  one  consolidated  fund  for  Great  Britain  and 
Ireland.  The  Consolidated  Fund  stands  to  the  credit  of  the 
Exchequer,  that  is,  of  the  public  treasury. 


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BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[IS9 


i'  < 
i  : 


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The  Bank  of  England  and  the  Treasury 

The  custodians  of  this  account  are  the  Bank  of  England 
and  the  Bank  of  Ireland.  Thus  these  banks  are  substituted 
for  the  "strong  box/*  or  chest,  of  the  old  Exchequer  for  the 
keeping  of  the  public  treasure.  The  duty  of  the  banks  is 
confined  to  receiving  the  public  revenue  and  paying  it  out  to 
officers  who  are  charged  with  the  actual  responsibility  of 
settling  and  paying  public  obligations.  These  officers  take 
the  place  of  the  Teller  under  the  old  cashbox  system. 

The  centralization  of  all  public  payments  in  London  and 
the  direct  hold  of  the  Bank  on  the  process  of  payment  lend  an 
importance  to  the  central  organization  of  public  financial 
administration  in  England  such  as  it  possesses  in  no  other 
country.  Through  the  medium  of  the  Bank  public  revenues, 
without  being  collected  in  provincial  treasuries,  are  trans- 
mitted direct  by  the  Receivers  of  Taxes  to  London,  after  local 
expenses  have  been  met.  The  Bank  of  England  thus  actually 
receives  the  surplus  cash  of  all  the  revenue  departments. 
The  greater  part  of  the  Government  expenditures  is  paid  in 
London  itself.  Expenditures  which  have  to  be  met  outside 
of  London  and  which  cannot  be  paid  by  the  receivers  from 
their  collections  are  always  remitted  from  London.  This 
keeps  the  management  of  the  money  in  the  hands  of  the  cen- 
tral authorities. 

Each  of  the  head  offices  concerned  with  the  administra- 
tion of  the  various  branches  of  the  revenue  has  an  account  at 
the  Bank.  All  the  money  received  by  these  offices  is  in  the 
first  instance  credited  to  one  of  these  accounts.  Only  mis- 
cellaneous receipts  which  are  managed  by  the  Treasury  are 
paid  direct  to  the  Exchequer  account. 

Revenues  received  by  the  collectors  in  the  provinces  are 


remitted  to  London  by  means  of  bills  of  exchange  which  are 
made  out  to  the  head  office  to  which  payment  is  to  be  made. 
Should  there  be  a  branch  of  the  Bank  of  England  in  the 
neighborhood  of  the  collector  he  deposits  his  money  there, 
and  the  amount  is  at  once  credited  to  the  general  account  of 
the  Commissioners  of  Inland  Revenue  in  the  books  of  the 
Bank,  but  as  the  Bank  has  only  flight  branches  remittances 
are  more  usual.  The  bills  run  for  two  or  three  days  and  are 
sent  to  the  Bank  by  the  Commissioners  of  Inland  Revenue  to 
be  cashed.  When  they  have  been  honored  the  Bank  credits 
the  account  of  the  office  with  the  amount  in  question. 

The  Bank  of  Ireland  acts  for  account  of  the  Exchequer  in 
Ireland  while  in  Scotland  the  six  principal  banks  act  in  turn 
in  this  capacity,  as  agent  for  the  Bank  of  England. 

The  Government  account  has  been  kept  by  the  Bank  of 
England  since  1834  under  the  name  of  *'The  Account  of  His 
Majesty's  Exchequer."  Into  this  account  all  the  public 
revenues  are  paid  as  soon  as  possible  after  their  collection 
and  from  it  all  disbursements  are  made.  The  Exchequer 
account  is  not  the  account  of  a  distinct  central  treasury  as 
opposed  to  various  other  treasuries.  It  is  the  repository  for 
all  public  moneys. 


The  Paymaster  General 

The  English  system  of  disbursing  public  funds  rests  upon 
the  principle  of  having  a  single  Paymaster  General  for  the 
whole  Government.  He  receives  the  money  from  the 
Exchequer  that  is  required  for  the  payment  of  public  obli- 
gations and  makes  such  payments  himself  or  advances  money 
to  "sub-accountants**  for  that  purpose.  "Sub-accountants" 
are  defined  by  the  Exchequer  and  Audit  Departments  Act  as 

t  In  the  provinces. 


I  tit*  m 


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BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


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'those  who  receive  advances  by  way  of  imprests  from  prin- 
cipal accountants  or  who  receive  fees  or  other  public  moneys 
through  other  channels/'  The  Paymaster  General  is  in  no 
sense  an  accounting  officer.  He  has  nothing  to  do  with  the 
examination  and  settlement  of  claims.  His  sole  function  is 
that  of  making  payment  of  orders  drawn  upon  him  by  ac- 
counting officers  proper.  His  responsibility  is  limited  to 
that  of  satisfying  himself  that  the  orders  for  payment  are  in 
due  form  and  are  supported  by  the  proper  documents  as 
required  by  law. 

Originally  there  were  a  number  of  paymasters,  one  for  the 
army,  one  for  the  navy  and  a  number  for  the  several  civil 
services.  During  the  years  1830-1856  these  were  abolished 
and  their  duties  consolidated  in  the  single  office  of  Paymaster 
General.  A  special  feature  of  this  system  is  that  although 
the  Paymaster  General  keeps  a  separate  account  in  respect 
to  each  vote  for  the  civil  services  and  a  separate  consolidated 
account  with  each  of  the  departments  of  the  army  and  navy, 
he  keeps  but  one  general  balance  from  which  he  makes  pay- 
ments on  account  of  all  the  votes.  This  means  that  so  long 
as  he  has  a  sufficient  balance  he  can  pay  any  order  drawn 
upon  him  regardless  of  the  vote  to  which  it  relates  whether 
he  has  requisitioned  sufficient  funds  on  account  of  that  vote 
or  not.  Any  payment  on  account  of  a  vote  in  excess  of  a  sum 
requisitioned  for  that  vote  is  subsequently  adjusted  by  a 
future  requisition. 

Accounting  Officers 

As  we  have  seen,  the  duty  of  the  Paymaster  General  is 
that  of  paying  obligations  found  to  be  due.  It  is  for  the 
accounting  officers  to  determine  what  payments  are  so  due 
and  payable.    Technically  an  accounting  officer  is  the  officer 


charged  with  the  duty  and  responsibility  for  the  expenditure 
of  a  vote  and  of  rendering  an  account  of  the  manner  in  which 
the  duty  is  performed. 

An  accounting  officer  is  designated  for  each  vote.  Theo- 
retically there  might  be  as  many  accounting  officers  as  there 
are  votes.  The  same  person  is  usually  made  the  accounting 
officer  for  all  the  votes  for  a  department  or  other  important 
branch  of  the  public  service.  The  duty  of  rendering  an 
account  of  the  manner  in  which  funds  are  expended  is  a  part 
only  of  the  duties  of  this  officer.  He  is  also  charged  with  the 
supervision  and  control  of  all  the  financial  operations  of  the 
department  to  which  he  is  attached.  He  is  the  officer  whose 
approval  is  required  before  any  expenditure  of  funds  can  be 
made  or  liability  entered  into.  The  accounting  officer  has 
entire  charge  of  the  financial  operations  of  his  service.  He 
is  responsible  for  all  expenditures  and  the  rendition  of  the 
accounts.  His  duties  pertain  not  only  to  the  settling  of  ac- 
counts but  to  the  incurring  of  obligations  in  the  first  instance. 
He  has  the  duty  of  seeing  not  only  that  the  law  is  strictly 
complied  with  but  that  all  expenditures  are  made  to  the  best 
possible  advantage.  In  a  word  he  is  the  watch  dog  of  his 
service  and  the  permanent  financial  secretary  of  his  depart- 
ment. 

There  is  a  complete  and  thorough  system  of  audit. 

Financial  Reports 

Various  financial  reports  are  submitted  annually  to  Par- 
liament. The  principal  report,  known  as  Finance  Accounts^ 
dates  from  1802  and  has  not  changed  its  essential  character 
since  its  first  issue.    The  accounts  are  made  up  for  the  fiscal 


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BANKERS  TRUST  COMPANY 


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year  which  terminates  on  March  31  and  are  laid  before  Parlia- 
ment on  or  before  June  30th  of  each  year.  Finance  Accounts 
also  contains  a  statement  in  considerable  detail  in  regard  to 
the  national  debt. 

Note. — The  principal  dependence  for  the  statements  made  in  this  chapter  has  been 
placed  upon  a  report  on  The  System  of  Financial  Administration  of  Great  J5n/a»n,  made 
\?7^*iV  x?r^  «r.S^^*^Hl^  ^^^  Government  Research,  by  Professors  William  F.  Willoughby. 
Westel  W.  Willoughby  and  Samuel  McCune  Lindsay,  and  upon  the  History  of  the 
Bank  of  England  and  its  Financial  Services  to  the  State,  by  Eugene  Von  Philippovich. 
■  1  he  word  vote  which  frequently  occurs  in  the  chapter  is  used  in  a  sense  equiva- 
lent to  our  term  "appropriation,"  while  the  word  "issue"  is  equivalent  in  our  usage 
"O    pay. 


Chapter  XXV 
Concluding  Thought  and  Deductions 

WE  have  now  traced  the  history  of  English  public 
finance  from  the  time  of  the  accession  of  William  III 
down  to  the  present  day.  We  have  found  that  with  relatively 
unimportant  exceptions  the  debt  has  arisen  from  the  extra- 
ordinary expenses  of  the  various  wars  in  which  the  nation 
has  been  engaged.  We  have  seen  that  the  cost  of  war 
has  progressively  increased  and  that  after  each  war  all 
expenses  of  the  State  have  risen  to  a  new  level.  We  have 
found  little  disposition  to  reduce  debt  during  the  intervals 
of  peace.  However,  we  have  found  that  the  growth  of  the 
nation  in  material  resources  has  reduced  in  each  historical 
period  the  burden  of  the  debt. 

We  have  learned  that  the  English  financiers  have  always 
derived  a  substantial  portion  of  the  cost  of  each  war  period 
from  taxation.  Turning  to  the  revenue  from  taxation,  we 
discover  that  the  most  flexible  source  of  taxation  has  proved 
to  be  the  income  tax.  The  finance  ministers  since  that  form  of 
taxation  was  introduced,  have  found  it  comparatively  easy  to 
meet  the  requirements  of  a  new  situation  by  slightly  or  largely 
raising  or  lowering  the  rate  of  this  tax.  It  is  no  longer  neces- 
sary to  hunt  up  fantastic  sources  of  income,  such  as  taxation 
of  bachelors,  hearth  taxes,  window  taxes  and  the  like.  Again, 
so  far  as  the  customs  are  concerned,  it  has  been  learned  that 
much  better  results  can  be  obtained  from  a  moderate  tax 
on  a  few  articles  of  common  use  than  by  taxing  many  articles. 
This  simplifies  administration  and  reduces  the  cost  of  col- 
lecting the  taxes. 

1 163 


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BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


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As  to  the  purposes  for  which  national  taxes  are  raised,  we 
find  that  outside  of  the  cost  of  wars,  the  maintenance  of  the 
military  establishment  in  times  of  peace  and  the  public  debt 
burden,  other  expenses  are  relatively  small.  Therefore,  if  a 
way  could  be  discovered  to  end  wars  and  to  pay  off  the  debt, 
the  people  of  Great  Britain  thereafter  need  scarcely  feel  the 
burden  of  taxation  for  other  purposes,  that  is,  unless  it 
seemed  wise  to  undertake  enlarged  plans  for  social  better- 
ment. As  to  such  undertakings,  we  have  found  that  since 
the  widening  of  the  suffrage  there  has  been  a  growing  ten- 
dency toward  social  betterment  through  State  co-operation, 
and  that  when  the  war  broke  over  the  world  in  1914  there 
were  then  pending  plans  which  would  have  involved  further 
heavy  expenditures  for  such  purposes,  and  that  notwithstand- 
ing the  heavy  financial  burdens  of  the  war  there  has  been 
during  the  war  period  an  increasing  expenditure  for  educa- 
tion, for  old  age  pensions,  and  for  similar  purposes. 

From  the  point  of  view  of  the  investor,  especially  of  the 
foreign  investor,  we  find  that  since  the  Revolution  of  1688 
England  has  scrupulously  kept  her  engagements  with  the 
public  creditor,  that  she  has  done  so  in  times  of  stress  and  that 
her  burdens  to-day,  while  heavy,  are  not  much  heavier,  in 
proportion  to  national  wealth  and  income,  than  those  which 
she  has  borne  at  times  in  the  past.  Recent  statistics  of  her 
commerce  show  that  the  country,  even  in  the  unsettled  year 
1919,  has  quietly  been  forging  ahead  again.  While  we  expect 
to  vie  with  her  in  a  generous  rivalry  for  business,  we  cannot 
but  be  cognizant  of  the  fact  that  her  long  experience  in  the 
shipping  trade,  extending  over  the  centuries  from  the  time  of 
Drake's  famous  voyages  in  the  days  of  Queen  Elizabeth,  give 
her  a  peculiar  advantage  in  this  line.  The  experience  of  her 
bankers  and  manufacturers  is  an  asset  of  incalculable  value. 


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ENGLISH  PUBLIC  FINANCE 


[167 


Her  loyal  overseas  citizens,  the  peoples  of  her  self-governing 
Dominions,  Crown  Colonies  and  Dependencies  are  a  bulwark 
of  strength  and  afford  a  wonderful  home  market,  which  it  will 
be  surprising  not  to  see  specially  developed  hereafter. 

What  England  requires  to-day  to  insure  her  material  well 
being  is  a  heavy  output  of  goods  and  services  which  the  world 
will  take  in  exchange  for  the  food  which  she  must  buy  in  order 
to  maintain  her  population  and  for  the  raw  materials  of  man- 
ufacture, most  of  which  she  must  seek  without  her  own  bor- 
ders. 

If  class  distinctions  are  forgotten  in  a  general  effort  for  the 
common  welfare — in  short,  if  the  Golden  Rule  of  doing  as  you 
would  be  done  by  is  made  the  rule  of  action  for  conservatives 
and  liberals,  for  labor  and  for  capital,  there  need  be  no  fear 
but  that  England  will  maintain  a  strong  and  wholesome  na- 
tional life,  that  prosperity  and  happiness  will  be  hers  and  that 
the  wonderful  credit  standing  which  she  has  enjoyed  for  many 
generations  will  be  maintained  and  strengthened  in  coming 

years. 

The  tables  printed  on  pages  164  and  166  summarize  the 
statistical  data  for  the  entire  period  from  1688  to  1920. 
They  have  been  compiled  with  great  care  and  will  be  found 
worthy  of  study. 


li 


i 


The  Bank  of  England 


\\W-^ 


nlifti 


Chapter  I 
A  Banking  Evolution 

^  I  ^HE  Bank  of  England  is  more  than  a  corporation.  It  is  a 
A  personality.  The  first  of  the  modern  banks,  if  a  bank 
two  and  a  quarter  centuries  old  may  be  so  called,  it  is  also 
the  most  powerful.  This  standing  does  not  come  because  of 
its  resources,  for  even  its  large  capital  and  surplus  of  £17,- 
800,000  are  exceeded  or  closely  approached  by  those  of  sev- 
eral of  the  London  joint-stock  banks,  which  also  have  greater 
total  resources.  The  Federal  Reserve  Banks  of  the  United 
States  have  combined  capitals  and  surpluses  nearly  double 
those  of  the  Bank  of  England,  and  gold  holdings  nearly  five 
times  as  large.  Nevertheless  the  Bank  of  England  has  a 
prestige  and  a  standing  which  is  all  its  own,  won  by  years  of 
honorable  and  capable  administration  of  the  finances  of  the 
world's  greatest  money  capital. 

T/ie  Functions  of  the  Bank 

The  Bank  of  England  while  privately  owned  performs  all 
of  the  functions  of  a  State  bank.  It  also  conducts  a  general 
banking  business,  receiving  the  deposit  accounts  of  corpora- 
tions and  of  individuals. 

From  1844  until  1914  it  possessed  practically  the  sole 
right  of  note  issue  in  England,  but  the  Treasury,  or  currency, 

1169 


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170] 


BANKERS  TRUST  COMPANY 


notes  now  in  circulation  greatly  exceed  the  combined  circu- 
lation of  the  Bank  of  England  and  of  the  Scotch  and  Irish 
banks. 

The  functions  of  the  Bank  in  connection  with  the  Excheq- 
uer described  in  another  chapter  are  of  great  importance. 

The  prerogative  of  the  Bank,  which  has  accrued  to  it  by  a 
process  of  evolution,  of  holding  the  ultimate  reserve  for  the 
banking  and  commercial  interests  of  the  United  Kingdom  is, 
in  normal  times,  what  gives  the  Bank  its  premier  position 
among  English  financial  institutions.  The  other  distinctive 
purpose  which  it  serves,  especially  in  times  of  national 
stress,  is  by  the  alchemy  of  credit  to  liquefy  the  assets  of 
the  Kingdom  and  put  them  to  work  for  its  preservation  and 
advancement 

Holds  Ultimate  Banking  Reserves  of  Nation 

As  to  the  first  of  these  functions,  that  of  holding  the 
ultimate  banking  reserve  of  the  Kingdom,  it  has  come  to  be 
an  axiom  of  the  Englishman's  financial  creed  that  as  the 
Government  is  back  of  the  Bank  it  cannot  fail.  Therefore,  it 
is  argued,  there  is  no  reason  why  the  other  banks  should 
carry  any  important  reserve  other  than  their  deposit  with  the 
Bank,  although  some  of  the  joint-stock  banks  in  recent  years 
have  adopted  the  policy  of  carrying  a  substantial  amount  of 
gold  in  their  own  vaults.  The  amount  so  held  in  July,  191 8, 
was  estimated  by  the  "Committee  on  Currency  and  Foreign 
Exchanges  after  the  War,"  of  which  Lord  CunlifFe  was  Chair- 
man, at  £40,000,000.  The  Scotch  and  Irish  banks,  as  ex- 
plained in  the  previous  chapter,  also  carry  cash  balances 
which  may  include  a  certain  amount  of  specie.  Except  as  to 
the  gold  so  held  the  banking  business  of  Great  Britain,  with 
its  world-wide  ramifications,  depends  upon  the  strength  of 


ENGLISH  PUBLIC  FINANCE 


[171 


the  Bank  and  the  wisdom  of  the  management,  and  in  con- 
sequence the  commercial  credits  of  the  world  also  may  be 
said  to  rest  largely  on  the  same  foundation.  At  least  such 
was  the  case  until  August  i,  1914.  The  raising  of  the  Bank's 
rate  usually  would  automatically  turn  the  exchanges  in  favor 
of  London.  The  lowering  of  the  rate  would  make  for  "easy 
money"  throughout  the  world.  Not  only  so,  but  the  volume 
of  the  business  which  could  be  done,  even  in  remote  parts  of 
the  world,  was  determined  by  the  attitude  of  the  Bank.  This 
delicate  credit  stiucture  with  its  world-wide  relations  is  now 
partly  dislocated  as  a  result  of  the  war  and  will  not  properly 
function  again  until  England  returns  to  a  specie  basis. 

Mobilizes  National  Credit  Resources 

The  other  special  function  served  by  the  Bank  is  that  of 
mobilizing  the  financial  resources  of  the  people  for  great 
financial  and  commercial  emergencies  and  especially  for 
meeting  the  needs  of  the  Government  in  time  of  war.  This 
is  accomplished  because  of  the  fact  that  the  ultimate  banking 
reserve  of  the  nation  carried  with  the  Bank  can  be  made  the 
basis,  on  occasion,  for  a  great  expansion  of  credit.  It  is  the 
modern  development  of  our  forefathers'  idea  of  a  "fund  of 
credit."  The  reserve  of  the  joint-stock  and  private  banks 
deposited  with  the  Bank  has  come  to  be  considered  a  basis 
for  an  extension  of  credits  to  their  borrowing  customers. 
As  a  result  of  long  experience,  it  is  found  that  a  given  reserve 
is  sufficient  to  warrant  the  granting  of  credits  for  several 
times  its  amount.  This  principle  is  well  known  to  bankers 
and  constantly  observed  in  their  transactions. 


IMii 


Chapter  II 
The  Genesis  of  Banking 

TT  will  be  of  interest,  before  taking  up  the  history  of  the 
-^  Bank  of  England  and  discussing  its  functions  more  in 
detail,  briefly  to  consider  the  evolutionary  process  which  led 
up  to  conditions  making  this  bank  a  possibility. 

Banking  Originated  in  Italy 

The  enterprise  of  the  medieval  Italian  merchants  carried 
them  to  all  parts  of  the  known  world.  It  was  natural,  there- 
fore, that  the  Popes  should  commission  them  to  collect  their 
revenues  and  to  transport  them  to  Rome.  As  these  revenues 
were  paid  in  the  moneys  of  the  countries  where  collected,  the 
merchants  readily  became  money  changers  and  early  origi- 
nated and  used  letters  of  credit  and  bills  of  exchange.  It 
was  in  keeping  with  their  other  activities  to  act  as  collectors 
and  farmers  of  the  revenues  of  the  sovereigns  of  the  countries 
which  they  visited.  As  farmers  of  the  revenues  they  would 
make  advances  to  the  King  and  reimburse  themselves,  with 
a  profit,  by  collecting  the  customs  or  some  other  branch  of 
the  King's  revenue,  which  was  given  to  them  in  "  ferme" — 
that  is,  as  security.  From  such  advances  against  the  rev- 
enues it  was  an  easy  step  to  making  direct  loans.  Some- 
times the  repayment  of  these  loans  was  guaranteed  by  the 
pledge  of  the  Crown  jewels,  the  royal  wardrobe,  or  the  very 
diadem  itself.  As  the  payment  of  interest  ("usury'*)  was 
forbidden  by  the  Church,  the  merchants  were  rewarded  for 
these  advances  in  various  indirect  ways.  Sometimes  the 
King  agreed  to  buy  jewels  or  other  wares.  Sometimes  he 
172] 


ENGLISH  PUBLIC  FINANCE 


[173 


granted  trading  concessions,  or  used  his  influence  in  behalf  of 
the  merchants  with  other  potentates.  Sometimes  he  made 
the  merchants  a  substantial  cash  present  for  the  use  of  the 
money  beyond  the  time  originally  agreed  upon  for  its  re- 
payment. 

The  necessities  for  ready  money  by  those  taking  part  in 
the  crusades  gave  the  Italians  special  opportunities  for  mak- 
ing gain  from  conversions  of  properties  of  various  kinds  into 
liquid  funds. 

The  Italian  Bankers  and  the 
Plantagenet  Kings  of  England 

The  Plantagenet  kings  of  England  from  the  time  of  Henry 
II  through  the  reign  of  Edward  III — that  is,  over  a  period  of 
more  than  two  hundred  years,  from  the  middle  of  the  twelfth 
century  to  well  into  the  fourteenth  century — were  active  pa- 
trons of  the  Italian  merchant  bankers.  The  archives  of  Old 
England  contain  copies  of  contracts  between  the  Crown  and 
the  merchants  dating  from  as  far  back  as  the  reign  of  King 
John.  Following  is  a  translation  from  the  Latin  of  such  a  con- 
tract, which  must  have  been  entered  into  during  1199,  the 
first  year  of  John's  reign.  It  refers  to  the  payment  of  a  debt 
incurred  by  Richard  I,  presumably  in  connection  with  his 
crusade.  Note  in  the  last  paragraph  the  promise  of  the  King, 
"  by  way  of  thanks  for  your  generous  waiting  *  *  *  your 
waiting  shall  not  seem  burdensome  to  you.^ 


i9 


DEBENTURE  OF  THE  REIGN  OF  JOHN 

John,  by  the  grace  of  God  King,  etc.  ...  to  his  beloved 
friends  Speren,  Barageton  and  their  associate  merchants  of 
Placentia  (i.  e.  Piacenza),  greeting. 

Know  that  we  wish  to  pay  to  you  two  thousand  marks  and 
125  marks,  which,  for  love  of  the  dear  memory  of  King  Richard, 


1^ 


1741 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


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our  brother  and  in  accordance  with  his  own  request  you  lent  to 
William  Andegavensis  (i.  e.  of  Anjou)  and  R.  Bangorensis, 
bishops,  and  to  Stephen  Ridel,  for  carrying  out  the  business  of 
our  dearest  grandson,  the  illustrious  King  Otho,  in  the  Senate 
of  Rome.  And  therefore,  by  these  presents,  we  bind  ourselves 
to  you  for  such  an  amount,  promising  that  on  the  next  Feast 
of  St.  Michael  after  our  coronation,  at  our  exchequer  in  Eng- 
land, we  shall  cause  to  be  paid  to  you,  or  to  your  known  envoy, 
upon  his  bringing  and  presenting  these  presents,  625  marks, 
and  at  the  Easter  next  following  500  marks  in  the  same  place, 
and  at  the  following  Feast  of  St.  Michael  500  marks  at  the 
same  place  and  likewise  500  marks  at  the  next  following 
Easter  we  shall  cause  to  be  paid  at  our  exchequer  in  England 
to  you  or  to  your  known  envoy  upon  presentation  of  this  our 
note  of  indebtedness.  And  nevertheless  by  way  of  thanks 
for  your  generous  waiting  we  shall  reply  to  you,  the  Lord 
favoring,  that  your  waiting  shall  not  seem  burdensome  to 
you.  Witness  my  hand  at  Rothomagum,  the  25th  day  of 
August.     (1199  A.  D.) 

Following  IS  a  letter  of  credit  dating  from  the  second  year 
of  the  same  reign.    This  also  is  translated  from  the  Latin. 

LETTER  OF  CREDIT  OF  THE  REIGN  OF  JOHN 

John,  by  the  Grace  of  God  ...  to  all  merchants,  etc. 
Know,  all  of  your  body,  that  we  do  appoint  the  bearers  of  these 
presents,  Hugo  of  Feritas  and  Robert  of  Sablenc,  to  prosecute 
our  business  at  the  Senate  of  Rome,  and  to  merchants  from 
whom  they  shall  have  borrowed  money  up  to  500  marks  sil- 
ver, for  prosecuting  this  business,  we  shall  be  held  bound  to  pay 
the  money  in  full.  And  by  these  presents  we  are  constitute 
principal  debtors  for  this  amount  and,  the  term  agreed  upon, 
in  accordance  with  the  convention  made  between  our  afore- 
named clerks  and  the  merchants.  To  those  who  shall  bring 
these  presents  to  us  or  to  our  mandatory  along  with  letters 
from  the  aforenamed  clerks  showing  the  sum  of  money  bor- 
rowed from  the  protestants  we  shall  cause  the  money  to  be 
paid  in  full.  Witness  my  hand  at  Fissa,  the  6th  day  of  January. 
(1201  A.  D.) 


The  transactions  with  the  Italians  ended  disastrously  for 
them  and  disgracefully  for  Edward  III,  when,  because  of  his 
failure  to  meet  his  obligations  to  them,  the  great  Florentine 
houses,  known  as  the  Bardi  and  the  Peruzzi,  were  unable  to 
meet  their  commercial  engagements,  and  finally  became  bank- 
rupt. 

TAe  Kings  Factor 

Dating  from  the  reign  of  Edward  III  we  find  the  kings  of 
England  having  dealings  with  English  merchants.  The  king's 
factor  (financial  agent — banker)  held  an  honorable  position 
at  court.  He  was  charged  with  the  arduous  duty  of  keeping 
the  king's  coflFers  filled.  One  of  the  first  merchants  to  hold 
this  position  was  William  de  la  Pole  of  Hull,  who  in  1338 
and  1339  lent  Edward  III  what  for  those  times  were  immense 
sums  of  money.  He  not  only  freely  supplied  the  King  from 
his  own  resources,  but  in  order  to  secure  additional  sums 
kom  others,  he  even  mortgaged  his  own  real  estate.  He  is 
styled  in  all  public  instruments  "our  faithful  and  well  beloved 
merchant.''  Passing  by  others  worthy  of  mention,  we  find, 
about  two  hundred  years  later,  Sir  Thomas  Gresham  acting  a$ 
royal  agent  or  factor  for  Edward  VI  and  later  for  each  of  his 
sisters,  Queen  Mary  and  Queen  Elizabeth.  Just  as  De  la  Pole 
arranged  loans  at  Antwerp  for  Edward  III,  so  two  centuries 
later  we  find  Gresham  doing  for  Edward,  Mary  and  Eliza- 
beth. Thus  it  would  appear  that  after  the  downfall  of  the 
Italian  merchants,  De  la  Pole  was  able  to  win  the  confidence 
of  a  group  of  Flemish  merchants  and  that  on  the  whole  their 
transactions  had  proven  to  be  suflSciently  satisfactory  to 
cause  them  and  their  successors  to  be  willing  to  continue 
financial  relations  over  two  centuries — relations  which  were 
to  continue  for  yet  other  centuries. 


1761 


BANKERS  TRUST  COMPANY 


Early  Italian  Corporate  Banks 

Before  we  take  up  the  consideration  of  the  development  of 
banking  in  England  let  us  now  retrace  our  steps  and  see  what 
happened  in  Italy  following  the  commercial  crisis  due  to  the 
failure  of  the  Bardi  and  Peruzzi.  It  would  appear  that  there 
were  recurrent  revivals  of  business  activities  and  of  failures 
not  unlike  the  recurring  crises  with  which  we  have  become 
familiar  in  modern  times.  Notwithstanding  occasional  dis- 
asters the  banks,  as  they  came  to  be  called  as  early  as  1421, 
grew  and  multiplied.  They  were  banks  both  of  deposit  and 
discount.  "Giro**  payments — that  is,  payments  by  means 
of  transfers  on  the  bankers'  books — ^were  made  from  the  early 
part  of  the  fifteenth  century.  Transferable  certificates  of  de- 
posit were  issued  and  used  "like  coin.''  So  these  early  banks 
were  banks  of  issue  as  well  as  banks  of  deposit.  Some  of  these 
private  banks  became  very  powerful.  However,  recurrent 
failures  which  sometimes  were  due  to  bad  banking  practices, 
but  often  to  forced  loans  to  the  Government  which  tied  up 
a  large  part  of  the  bankers'  resources  in  a  fixed  form,  weak- 
ened confidence  in  the  private  bankers  and  led  to  the  estab- 
lishment in  Venice,  in  1584,  of  the  first  public  bank.  This  was 
known  as  the  Banco  della  Piazza  del  Rialto.  This  bank 
restricted  itself  to  keeping  depositors'  money  in  security,  and 
to  paying  it  out  or  transferring  it  according  to  their  direc- 
tions. 

In  1587  the  private  banks  were  suppressed.  The  need  for 
further  banking  facilities  led  in  1619  to  the  establishment  of 
the  famous  Banco  del  Giro,  which  in  1637  absorbed  the  Banco 
della  Piazza  del  Rialto.  The  Banco  del  Giro,  or,  as  it  came  to 
be  known,  the  Bank  of  Venice,  continued  in  business  until 
1806. 


ENGLISH  PUBLIC  FINANCE 


[177 


Another  famous  early  Italian  bank  was  an  outgrowth  of 
the  business  of  the  Compania,  or  Casa,  di  San  Giorgio  of 
Genoa.  This  institution  is  described  by  Andreades  in  his 
^^History  of  the  Bank  of  England"  as  an  association  of  State 
creditors  who  managed  the  revenues  of  the  republic,  owned 
colonies  and  possessions,  maintained  armies  and  fleets,  made 
war  and  concluded  treaties,  and  combined  with  all  these 
various  functions  the  duties  of  a  bank  of  deposit.  Its  gene- 
sis dates  back  to  the  organization  in  1148  of  a  company  to 
make  a  loan  to  the  republic.  By  1250  a  number  of  such  com- 
panies, which  were  called  "Compere,"  were  merged  under  the 
name  of  Compera  del  Capitalo.  In  1407  Jean  le  Maingre, 
Marshal  of  France,  changed  this  compera  into  the  Ufficio  di 
San  Giorgio,  which  continued  until  1736  the  business  of  mak- 
ing advances  to  the  State.  It  soon  became  a  State  within 
the  State,  possessing  great  power  and  influence.  Just  how 
early  it  began  to  do  a  banking  business  is  not  evident.  Its 
cartulary  or  registered  notes  were  somewhat  similar  in  char- 
acter to  modern  bank  notes.  They*  were  certificates  of  de- 
posit, but  as  the  deposits  were  not  held  as  a  definite  fund  to 
secure  them  but  used  in  the  general  business  of  the  bank  the 
notes  in  fact  circulated  on  the  general  credit  of  the  bank. 
This  bank  continued  in  business  until  1797  when  it  failed. 
So  much  for  the  early  Italian  banks. 

The  Bank  of  Amsterdam 

In  the  Bank  of  Amsterdam,  founded  1608  or  1609,  the 
Dutch  possessed  the  third  public  bank  to  be  organized. 
Founded  after  the  Italian  bapks,  it  continued  in  business  until 
1790,  when  its  aff"airs  were  liquidated  by  the  city,  which  guar- 
anteed its  solvency.  The  Bank  of  Amsterdam  theoretically 
held  in  trust  the  actual  coin  or  bullion  deposited  with  it,  issu- 


0  :i^ 

i  f 


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178] 


BANKERS  TRUST  COMPANY 


ing  Its  notes  against  such  deposits.  At  a  time  when  the  coin- 
ages were  systematically  sweated  and  clipped  the  function 
which  this  bank  performed  of  practically  insuring  the  integ- 
rity of  the  currency  was  a  valuable  one  to  the  commercial 
community.  Thus  its  notes  came  to  command  a  premium 
for  purposes  of  exchange.  The  failure  of  the  bank  was  pre- 
cipitated by  the  disclosure  that  its  assets  had  been  clandes- 
tinely loaned  to  the  Dutch  East  India  Company. 
To  return  to  England. 

T/ie  English  Goldsmith  Bankers 

Those  who  first  engaged  in  business  operations  in  Eng- 
land analogous  to  the  modern  profession  of  banking  were  the 
Italian  merchants  commonly  known  as  Lombards.  Hence 
Lombard  Street  in  London,  where  their  homes  and  places  of 
business  were  chiefly  situated.  Naturalized  foreigners  and 
finally  natives  took  up  the  business.  The  goldsmiths,  as 
they  were  called,  united  the  trades  of  the  goldsmith,  of  the 
dealer  in  bullion  and  of  the  money-lender.  In  the  latter  ca- 
pacity the  goldsmith  also  conducted  a  pawn-brokerage  busi- 
ness. Sometimes  the  pawns  were  the  royal  jewels  and  the 
jewels  of  the  nobility,  for  the  goldsmith  was  a  canny  person 
and  usually  took  good  care  to  obtain  security  for  his  ad- 
vances. A  traveler  who  visited  England  from  the  Continent 
in  1593  tells  us  that  in  Lombard  Street  he  saw  "all  sorts  of 
gold  and  silver  vessels  exposed  to  sale,  as  well  as  ancient  and 
modern  coins.**  The  goldsmiths  gave  and  took  a  bond  on 
receiving  and  lending  money.  They  exacted  heavy  payments 
for  their  loans.  About  the  time  of  Charles  I — say,  from  1625 — 
it  became  customary  for  the  merchants  to  entrust  their  bal- 
ances to  the  goldsmiths.  Before  that,  for  some  time,  they 
had  been  in  the  habit  of  depositing  them  for  safekeeping  in 


ENGLISH  PUBLIC  FINANCE 


[179 


the  Tower  of  London.  However,  after  Charles  had  seized 
£130,000  temporarily  deposited  in  the  Tower  while  en  route 
from  Spain  to  Dunkirk,  the  merchants  were  afraid  to  make 
further  deposits,  even  though,  after  they  had  consented  to 
make  the  King  a  loan  of  £40,000,  he  had  released  this  particu- 
lar deposit. 

They  then  got  into  the  habit  of  entrusting  their  surpluses 
to  their  cashiers.  Some  of  these,  of  a  thrifty  turn  of  mind, 
instead  of  "wrapping  their  talent  in  a  napkin'*  deposited  the 
trust  fund  with  the  goldsmiths  and  so  realized  interest  which 
substantially  increased  their  yearly  stipend  from  their  em- 
ployers. The  latter  then  awoke  to  the  fact  that  by  such  an 
arrangement  their  funds  could  be  safeguarded  and  income 
increased  and  so  deposited  them  directly  with  the  goldsmiths 
for  their  own  account. 

This  custom  developed  greatly  during  the  troublous  times 
of  the  civil  wars  and  in  the  Cromwellian  era  until  it  is  said 
that  half  the  gold  in  the  kingdom  came  to  be  stowed  away 
in  the  goldsmiths'  vaults.  The  banking  business  of  the  mer- 
cantile community  was  in  the  goldsmiths'  hands  and  from 
this  business  they  derived  handsome  revenues,  laying  the 
foundations  for  fortunes,  some  of  which  have  continued  to 
the  present  day,  and  for  banking  businesses  which  in  one 
form  or  another  still  endure. 

Charles  II  dealt  the  goldsmiths  and  their  clients  a  cruel 
blow  when  in  1672  he  confiscated  the  loans  which  the  gold- 
smiths had  made  to  the  Exchequer.  This  ''Stop  of  the  Ex- 
chequer,'* already  noted  in  a  previous  chapter,  involved  the 
large  sum  of  £1,328,526  and,  as  might  be  expected,  was  fol- 
lowed by  serious  consequences  to  the  goldsmiths  and  to  the 
entire  community. 


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Chapter  III 
The  Early  History  of  the  Bank  of  England 

^  I  ^HUS  It  was  when,  about  twenty  years  after  the  happening 
-■■  of  the  events  just  described,  WilHam  Paterson  of 
Dumfries  came  forward  with  a  project  for  a  bank  which 
would  be  the  equal  in  strength  of  the  Banks  of  Amsterdam, 
of  Venice  and  of  Genoa,  he  received  a  ready  hearing  in  busi- 
ness circles.  In  1691  Paterson  urged  the  establishment  of  a 
national  bank,  so  as  to  provide  a  safe  means  of  borrowing 
money  at  proper  rates  of  interest.  Many  of  the  great  London 
merchants  supported  his  project,  notably,  Michael  Godfrey, 
one  of  the  richest  and  most  honest  city  men  of  that  time. 
The  plan  was  coldly  received  by  Parliament,  but  the  neces- 
sities of  the  Government  for  funds  with  which  to  prosecute 
the  war  against  France  led  a  committee  of  the  Commons, 
to  which  a  consideration  of  the  project  had  been  referred, 
to  advise  Paterson  that  they  would  receive  any  proposal  to 
advance  one  million  pounds  on  a  perpetual  fund  of  interest. 
As  the  committee  were  unwilling  to  concede  any  reciprocal 
rights,  Paterson  and  his  friends  naturally  were  not  interested 
and  abandoned  the  project  for  the  time.  Finally  in  1694 
they  achieved  their  purpose,  but  the  proposal  "had  to  be 
smuggled  into  Parliament  under  cover  of  a  bill  imposing  a 
new  duty  on  tonnage,  for  the  benefit  of  the  capitalists  lending 
money  toward  carrying  on  the  war  with  France."  This  was 
known  as  the  Tonnage  Act. 

As  it  finally  became  a  law  the  bill  provided  that  the  sub- 
scribers to  a  perpetual  loan  of  £1,200,000  should  form  a  cor- 
poration to  be  called  **The  Governor  and  Company  of  the 
180I 


ENGLISH  PUBLIC  FINANCE 


[181 


Bank  of  England.'*    The  fund  so  raised  was  to  be  loaned  to 
the  Government. 

The  First  Years  of  the  Bank 

When  the  Bank  of  England  was  organized  in  1694  it  com- 
bined all  of  the  methods  of  banking  then  known.  Its  capital 
of  £1,200,000  was  loaned  wholly  to  the  State  for  an  annual 
return  of  £100,000 — that  is,  for  "an  interest"  of  8  percent, 
and  £4,000  for  management.  The  Bank  acquired  the  right 
to  receive  deposits,  to  issue  its  demand  notes  and  to  loan 
its  funds.  It  also  bought  and  sold  bills  of  exchange.  It 
was  organized  entirely  with  private  capital  and  as  a  private 
enterprise.  However,  it  had  very  close  relations  with  the 
State  from  the  day  of  its  organization.  At  first  it  had  no 
monopoly  rights  of  any  kind.  It  was  political  necessity  which 
brought  it  into  being.  The  Whig  government  was  sorely 
in  need  of  funds  to  maintain  its  existence  against  foreign 
aggression,  unsettled  conditions  in  Ireland  and  a  latent  liking 
of  many  of  the  great  Tory  families  for  the  deposed  James  II, 
whom  they  would  have  been  pleased  to  have  seen  back  on  the 
throne.  The  Bank  not  only  provided  William  III,  sometimes 
called  Dutch  William,  and  his  Whig  supporters  with  the 
original  £1,200,000,  but  it  stabilized  the  exchanges,  helped  to 
market  the  long  annuities  with  which  the  people  were  just  be- 
coming familiarized,  and  also,  even  in  those  early  days,  made 
temporary  advances  to  the  Government.  The  Bank  began 
business  without  a  dollar  of  cash  capital.  Its  resources  were 
the  "fund  of  credit,**  as  the  saying  of  the  time  had  it,  due  to 
its  holdings  of  the  Government  debt,  its  note  issuing  rights 
and  its  deposits. 

The  good  effects  of  such  an  institution  were  immediately 
telt.  The  Exchequer  officials  no  longer  had  to  make  "fre- 


m 


I82] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[183 


quent  processions  to  the  city  to  borrow  money  on  the  best 
and  nearest  public  securities,  at  ten  or  twelve  per  cent,  per 
annum  interest/'  The  mercantile  community  had  a  source 
from  which  to  obtain  loans  at  reasonable  rates,  and  the  foreign 
exchanges  were  rendered  more  stable.  One  of  the  earliest  and 
most  important  of  the  public  functions  of  the  Bank  was  to 
assist  in  the  rehabilitation  of  the  coinage  which  was  so  debased 
at  the  time  of  William's  accession  that  one  of  the  first  acts 
of  the  new  government  had  been  to  arrange  for  its  restoration. 

In  the  early  days  the  Bank  allowed  interest  on  its  notes 
and  also  upon  its  deposits,  a  practice  afterward  abandoned. 
Today  the  Bank  is  chiefly  a  bankers'  depository  and  therefore 
an  offer  to  pay  interest  upon  deposits  would  place  it  in  com- 
petition with  its  chief  patrons  and  interfere  with  its  functions 
as  the  holder  and  protector  of  the  ultimate  banking  reserve 
of  the  nation.  On  the  other  hand,  in  the  inception  of  its  busi- 
ness it  desired  to  build  up  its  deposits  and  increase  its  note 
issues  by  attracting  money  from  the  goldsmiths;  therefore 
the  payment  of  interest  was  a  powerful  lever  for  this  purpose. 
The  Bank  was  nearly  wrecked  in  the  second  year  of  its  career 
by  its  goldsmith  enemies,  who,  taking  advantage  of  the  fact 
that  there  was  a  great  scarcity  of  coin  because  of  the  restora- 
tion of  the  coinage  then  in  progress,  gathered  up  quantities  of 
the  Bank's  notes  and  demanded  immediate  redemption.  As 
the  Bank  could  not  promptly  enough  secure  coin  from  the 
mint  it  could  not  respond  and  was  temporarily  compelled  to 
suspend  specie  payments.  To  ease  this  situation  the  first 
Exchequer  bills  were  issued. 

The  necessities  of  the  Government  led  from  time  to  time 
to  overtures  to  the  Bank  for  larger  advances.  Taking  advan- 
tage of  such  situations  the  Bank  made  them  the  basis  for 
securing  valuable  concessions  and  additional  privileges^  in 


particular  a  monopoly  of  note  issue.  Mutual  concessions  on 
the  part  of  Government  and  Bank  were  made,  until  today 
the  Bank  has  the  exclusive  right  of  note  issue  in  England, 
except  for  the  unimportant  exception  noted  on  page  192,  the 
management  of  the  debt,  the  Government  deposit  accounts, 
freedom  from  taxation  and  other  privileges.  The  ownership 
and  control  of  the  Bank  remains  to  this  day  in  the  hands  of 
its  proprietors.  The  State  has  no  proprietary  interest  in  the 
capital  of  the  Bank  and  no  voice  in  its  management. 

Instead  of  attempting  a  detailed  history  of  the  Bank  we 
may  to  better  advantage  consider  certain  special  happenings 
in  its  long  career. 

There  are  three  especially  notable  periods  in  this  history. 
These  are  the  twenty-three  years  of  the  Great  French  War, 
the  events  of  1844  and  the  connection  of  the  Bank  with  the 
financing  of  the  recent  war.  fThe  notable  services  rendered 
by  the  Bank  during  the  crucial  period  of  the  past  six  years 
have  already  been  discussed.  We  may  now  consider  the  two 
other  great  crises  in  its  history 

Lessons  of  Eighteenth  Century 
Commercial  Crises 

We  may  note  in  passing  that  the  Bank  successfully  weath- 
ered the  commercial  crises  of  1763,  1772  and  1783  and  the 
directors  learned  by  experience  "that  while  a  drain  of  specie 
is  going  on  their  issues  should  be  contracted  as  much  as 
possible,  but  that  as  soon  as  the  tide  had  given  signs  of  ceasing 
and  turning  the  other  way  it  was  then  safe  to  extend  their 
issues  freely."  The  control  in  normal  times  of  the  inflow  and 
outflow  of  specie  by  raising  or  lowering  the  bank  rate  of  dis- 
count was  another  lesson  which  the  managers  learned  and 

tPart  I.  Chapter  V.  and  Chapter  VI. 


:l 


ii 


184 1 


BANKERS  TRUST  COMPANY 


have  ever  since  used  effectively,  except  during  the  suspension 
of  specie  payments  during  and  following  the  French  wars  and 
the  practical  suspension  of  such  payments  since  1914. 

The  industrial  revolution  in  England  in  the  early  part  of 
the  eighteenth  century,  due  to  the  invention  of  labor  saving 
devices  and  the  discovery  of  new  processes  of  manufacture, 
led  to  a  concentration  of  population,  to  great  activity  in  man- 
ufactures and  in  commerce  and  hence  to  the  need  for  banking 
facilities  on  an  enlarged  scale.  As  joint-stock  banks  were 
prohibited,  as  more  fully  explained  in  a  later  chapter, 
this  need  was  supplied  by  many  small  banks  of  issue  and 
deposit  organized  by  six  persons  or  less — shop-keepers, 
chemists,  tailors  and  bakers,  or  what  not.  The  coun- 
try and  city  thus  were  flooded  with  circulating  notes  of  weak 
banking  partnerships.  Many  of  these  issues  proved  to  be 
worthless.  From  1750  to  1783  the  country  banks  increased 
from  twelve  to  four  hundred.  In  the  crises  of  1793  and  1797 
many  of  these  banks  failed. 


Chapter  IV 
The  Bank  and  the  Great  French  War 

TN  1793  when  England  was  drawn  into  the  maelstrom  of 
A  war  in  Continental  Europe,  brought  about  by  the  French 
Revolution,  the  Bank  was  in  a  strong  condition.  Its  capital 
had  reached  £11,786,000 — all  loaned  to  the  Government.  It 
had  a  surplus  ("The  Rest'')  of  over  £3,000,000.  It  had  notes 
outstanding  for  £11,600,000.  Its  specie  reserve  was  about 
£5,000,000.  William  Pitt  was  Chancellor  of  the  Exchequer. 
The  war  came  to  him  and  to  his  confreres  as  a  surprise.  The 
English  people  had  been  watching  the  revolutionary  pro- 
ceedings in  France  with  great  interest.  They  had  not  ex- 
pected that  England  would  be  involved.  Pitt  and  his  gov- 
ernment had  made  all  of  their  plans  for  a  long  period  of  peace 
in  which  to  fully  recover  from  the  losses  of  the  American  War 
which  were  still  keenly  felt. 

Therefore  the  determination  to  engage  in  war  with  France 
found  the  Government  unprepared,  the  Exchequer  empty, 
or  relatively  so,  and  the  country  still  aghast  at  the  burden 
of  debt  which  had  accrued  from  the  American  War  and  the 
other  wars  of  the  eighteenth  century.  General  business  condi- 
tions were  bad,  due  to  a  succession  of  bad  harvests  and  the 
culmination  of  a  period  of  overtrading.  Many  country  bank 
failures  were  occurring.  The  Bank  of  England  itself  became 
alarmed,  contracted  its  credits  and  raised  the  rate  of  discount. 
To  relieve  the  situation  the  Government  had  found  it  neces- 
sary to  authorize  a  special  issue  of  Exchequer  bills  to  be  loaned 
to  merchants. 

It  was  in  the  midst  of  such  financial  conditions  that  Pitt 

[185 


» 


W\ 


i86] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[187 


'IW 


was  forced  to  find  the  means  with  which  to  finance  the  war 
needs  of  England  and  her  allies.   Great  sums  must  be  sent 
abroad  for  subsidies  and  for  the  support  and  pay  of  the  army 
and  of  the  navy.  The  Finance  Minister  and  the  City  had  a  very 
difficult  situation  with  which  to  deal— depleted  resources, 
adverse  exchanges,  heavily  increased  demands.   Under  the 
circumstances  it  is  small  wonder  that  Pitt  used  the  resources 
of  the  Bank  to  the  limit.   He  first  secured  legislation  removing 
the  restriction  which  Parliament  had  originally  laid  upon 
advances  from  the  Bank  to  the  State.   The  Bank  was  then 
at  his  mercy.    In  four  years,  from  1794  to  1797  inclusive,  the 
debt  of  the  Government  to  the  Bank  for  advances  of  various 
kinds  totaled  just  under  ten  million  sterling.   To  meet  the 
demands  upon  it  the  Bank  increased  its  note  issues.    Mean- 
while its  cash  resources  were  running  down  in  an  alarming  way. 
After  increasing  to  about  seven  million  pounds  in  1794  they 
fell  to  six  million  in  February  1795,  to  five  million  in  August, 
to  an  average  of  a  little  over  two  million  in  1796  and  finally 
to  £1,086,000  in  February,  1797. 

Specie  Payments  Suspended  ijgj-1821 

The  inevitable  happened.  Specie  payments  were  sus- 
pended, not  to  be  resumed  until  1821.  For  a  quarter  of  a 
century  England  was  to  experiment  with  an  inconvertible 

currency. 

The  King  himself  presided  at  the  meeting  of  the  Privy 
Councilwhich  authorized  the  suspension.  A  meeting  of  bankers 
and  merchants  passed  a  resolution  agreeing  to  accept  the 
notes  of  the  Bank  for  payments  due  them.  This  resolution 
was  supported  by  some  four  thousand  signatures.  The  matter 
was  referred  to  Parliament  for  action.  An  examination  by  a 
parliamentary  committee  disclosed  the  fact  that  in  addition 


to  the  permanent  debt  of  £11,700,000  represented  by  its  cap- 
ital, the  Bank  had  loaned  the  State  over  ten  million  out  of  its 
other  assets  of  £17,600,000  leaving  as  an  offset  against  £13,- 
800,000  demand  liabilities  and  about  £8,600,000  notes  about 
£7,600,000  of  banking  assets  other  than  obligations  of  the 
Government.  Not  exactly  a  liquid  condition,  especially  when 
it  is  remembered  that  the  specie  reserve  had  fallen  to  £1,086,- 
000.  Substantially  all  of  the  floating  debt  of  the  State  was 
then  held  by  the  Bank. 

How  was  this  situation  dealt  with?  Parliament  passed 
what  is  known  as  the  Restriction  Act.  This  granted  the  Bank 
and  all  connected  with  it  a  bill  of  indemnity.  The  Bank  was 
forbidden  to  pay  out  specie  except  for  the  needs  of  the  army 
and  navy  and  for  other  special  purposes  approved  by  the 
Privy  Council.  The  Bank  was  forbidden  during  the  restric- 
tion to  make  advances  for  the  public  service  in  excess  of 
£600,000.  Bank  notes  were  made  a  legal  tender  in  payment 
to  the  Government  and  between  others  by  agreement.  Pro- 
vision was  made  for  the  issue  of  £1  and  £2  notes  and,  for 
smaller  payments,  Spanish  dollars  were  put  in  circulation,  at 
a  valuation  of  4s  6d. 

Pitt  threw  all  of  his  influence  in  favor  of  the  conservation 
of  the  Bank's  credit,  so  that  during  the  remainder  of  his  life- 
time there  were  no  excessive  issues  of  notes.  Therefore  they 
remained  substantially  at  par  with  gold.  After  Pitt's  death, 
from  1809  to  1 8 17,  the  issues  of  notes  steadily  were  increased. 
This  course  of  action  was  due  partly  to  the  exigencies  of  the 
Government  and  partly  to  the  speculative  conditions  in  the 
business  world. 

It  will  be  remembered  that  Napoleon  endeavored  to  bring 
England  to  her  knees  by  closing  to  her  all  of  the  Continental 
ports  and  markets.    While  such  closing  was  only  partial,  as 


^f 


Mi 


i88] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


■ 


if 


lit 


many  ways  were  found  of  evading  the  edict,  still  it  acted  as  a 
great  stimulus  to  the  home  production  of  articles  which  would 
otherwise  have  been  imported.  At  the  same  time  the  South 
American  colonies  of  Spain  and  Portugal  were  declaring  their 
independence  and  opening  their  ports  to  English  products. 
These  conditions  led  to  speculation,  which  the  Bank  encour- 
aged by  greatly  expanding  its  credit  facilities.  These  facil- 
ities were  further  accentuated  by  the  large  amounts  of  Ex- 
chequer bills  put  out  by  the  Government,  plus  the  consider- 
able sum  of  inland  bills  of  exchange  which  was  in  use  and  the 
country  banks'  bills  which  were  in  circulation. 

Ejects  of  the  Suspension 

Advancing  prices  of  commodities,  including  gold,  and 
adverse  foreign  exchanges  were  the  barometers  which  meas- 
ured the  inflation  produced  by  the  large  issues  of  bank  and 
Government  paper.  According  to  Andreades,  after  being  at 
a  discount  of  £8  7s  per  £100  in  1801  and  £7  5s  in  1802,  Bank 
Notes  were  almost  at  par  (average  £2  3  s  discount)  from  1803 
to  1809.  The  depreciation  then  became  marked,  averaging 
as  follows,  until  the  resumption  of  specie  payments  in  1821 : 

Year 

1810  .    .    . 

1811  .  .  . 
1012  ... 
1813  .  .  . 
I014  ... 
1815  .    .    . 

Silberling,  by  another  basis  of  computation,  arrived  at  the 
conclusion  that  the  premium  on  gold  in  1811  averaged  nearly 
22  per  cent.,  in  181 2  over  32  per  cent.,  in  18 13  over  40  per 
cent.  The  Hamburg  exchanges  averaged  18  per  cent,  from 
normal  in  18 10,  nearly  31  per  cent,  in  18 11,  over  24  per  cent. 


£ 

s 

Year 

13 

9 

1816 

7 

16 

1817' 

20 

14 

to 

22 

18 

1818 

25 

3 

1819 

19 

4 

1820 

£ 
16 

s 
14 

2 

13 

4 
2 

9 
12 

[189 


in  1812,  and  over  26  per  cent,  in  1813.  Commodity  prices 
advanced  until  about  18 14,  averaging  at  their  highest  point 
about  70  per  cent,  above  those  of  the  pre-war  period. 

The  Bullion  Report 

In  1810  a  committee  of  Parliament  known  as  the  "Bul- 
lion Committee'"  made  an  exhaustive  study  of  the  causes 
which  had  produced  these  conditions,  so  far  as  they  had  then 
developed.  The  report  of  this  committee  is  one  of  the  land- 
marks on  the  highway  of  economic  studies  and  is  well  known 
to  all  students.  Therefore,  we  may  to  advantage  refer 
briefly  to  the  conclusions  of  the  committee  as  set  forth  in 
the  report.  The  points  in  controversy  which  they  set  them- 
selves to  solve  were  these :  Have  the  bank  notes  depreciated 
in  value  or  has  the  price  of  gold  actually  risen.?  Has  the  in- 
crease in  the  volume  of  the  notes  had  any  influence  upon  the 
exchanges.?  What  effect  would  a  restriction  of  the  issues  have 
on  the  price  of  gold  and  the  rate  of  the  exchanges.?  What 
policy  should  be  followed  in  regard  to  the  regulation  of  the 
issues.?  The  committee  called  before  them  bank  directors, 
private  bankers,  merchants  and  others.  The  conclusions  at. 
which  they  arrived  were  these;  First,  that  an  inconvertible 
and  excessive  credit  currency  caused  a  general  rise  in  prices, 
including  that  of  gold,  and  a  fall  in  the  exchanges  on  all  coun- 
tries except  those  which  had  an  equally  depreciated  currency. 
Second,  that  there  then  existed  an  excessive  paper  currency. 
Third,  that  the  only  true  and  proper  remedy  was  resumption 
of  cash  payments. 

Unfortunately  Parliament  took  an  opposite  view  of  the 
case.  This  encouraged  the  increasing  issues  on  the  part  of 
the  Bank,  leading  to  the  conditions,  up  to  1817,  which  we 
have  already  noted. 


(  I 


:( 


I 


•§ 


i 


190] 


BANKERS  TRUST  COMPANY 


Resuffiption  of  Specie  Payments  in  18 2 1 

These  conditions  referred  to  were  so  serious  that  on  Febru- 
ary 3,  1819,  the  two  houses  of  ParHament  each  appointed  a 
Committee  to  inquire  into  the  position  of  the  Bank.  These 
Committees,  after  hearing  the  views  of  bankers,  pubHcists 
and  others,  recommended  a  gradual  resumption  of  specie  pay- 
ments. In  pursuance  of  their  recommendations  an  Act  was 
passed  unanimously  in  18 19  providing  for  the  resumption  of 
specie  payments  on  May  i,  1823.  This  date  was  anticipated 
by  two  years,  the  metallic  basis  again  becoming  effective 
May  I,  1821, 


Chapter  V 
The  Joint-Stock  Banks 

IN  1697,  Parliament  evidently  intended  to  give  the  Bank  a 
virtual  monopoly,  since  no  other  corporation  of  the  nature 
of  a  bank  was  to  be  established  thereafter  by  Act  of  Parlia- 
ment. However,  this  Act  did  not  forbid  the  formation  of 
joint-stock  companies  for  other  purposes  nor  forbid  them  to 
undertake  a  banking  business.  Shortly  thereafter  a  corpora- 
tion, called  the  Company  of  Mine  Adventurers  of  England, 
issued  circulating  notes,  and  apparently  in  so  doing  was  quite 
within  its  legal  rights  under  the  Act  of  1697.  In  1708,  to  clear 
up  this  situation  Parliament  enacted,  "That  during  the  con- 
tinuance of  the  said  corporation  of  the  Governor  and  Com- 
pany of  the  Bank  of  England,  it  shall  not  be  lawful  for  any 
body  politic  or  corporate  whatsoever  *  *  *  qj.  f^j.  ^j^y 
other  persons  whatsoever,  united  or  to  be  united  in  covenants 
or  partnerships^  exceeding  the  number  of  six  persons,  in  that 
part  of  Great  Britain  called  England,  to  borrow,  owe,  or  take 
up  any  sum  or  sums  of  money  on  their  bills  or  notes  payable 
at  demand,  or  at  any  time  less  than  six  months  from  the . 
borrowing  thereof." 

As  the  issuing  of  notes  was  at  that  time  considered  to 
be  the  very  essence  of  banking,  this  Act  was  popularly 
taken  to  forbid  the  organization  of  any  other  bank.  In  fact 
it  only  forbade  the  organization  of  banks  of  issue  by 
strong  corporations,  but  left  the  door  open  for  any  group 
of  six  persons  or  less,  however  irresponsible,  to  engage  in 
banking  and  to  issue  notes.  It  was  thus  that  the  great  num- 
ber of  mushroom  country  banks  came  into  being  whose  fail- 
ure precipitated  or  accentuated  commercial  crises  for  more 
than  a  century  and  whose  note  issues  increased  the  redun- 

[191 


.•/< 

i 


'A 


ii 


192] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


dancy  of  the  currency  during  the  period  of  the  suspension  of 
specie  payments. 

By  an  Act  passed  in  1826  corporate  banks  of  issue  were 
permitted  if  located  more  than  65  miles  from  London.  This 
continued  to  be  the  law  until  1844  when  Parliament  deprived 
both  private  banks  and  joint-stock  banks  of  the  right  of  issue 
as  explained  in  the  next  chapter  discussing  the  Bank  Act  of 
1844.  However,  those  actually  in  existence — viz:  72  joint- 
stock  banks  and  207  private  banks — retained  limited  privi- 
leges of  note  issue.  The  law  provided  that  as  such  privileges 
lapsed  they  should  accrue  to  the  Bank  of  England.  At  the 
present  time  (1920)  only  six  private  banks  and  three  joint- 
stock  banks  have  issue  rights  and  the  aggregate  authorized 
issues  of  these  banks  is  only  £334,820. 

In  1733  Parliament  affirmed  the  legality  of  joint-stock 
banks  which  issued  cheques.  The  Bank  of  England  had 
vainly  endeavored  to  prevent  the  passage  of  such  legislation. 
Steps  were  at  once  taken  by  Ja;mes  W.  Gilbart  and  associates 
to  organize  "The  London  and  Westminister  Bank."  This 
bank  was  opened  at  38  Throgmorton  Street,  with  a  branch  at 
9  Waterloo  Place.  In  its  prospectus  it  was  stated  that  the 
bank  would  receive  current  accounts  and  that  persons  who 
did  not  care  to  keep  a  balance  might  "instead  thereof,  pay  to 
the  bank  a  certain  sum  annually  for  the  management  of  their 
account."  Interest  at  the  rate  of  two  per  cent,  per  annum  was 
offered  on  sums  ranging  from  £10  to  £1000  received  on  "per- 
manent lodgment."  No  interest  was  allowed  on  the  balance 
of  a  current  account. 

In  1832  there  were  62  private  banks  in  London.  In  1834 
the  number  of  private  country  banks  and  branches  thereof 
in  England  and  Wales  was  638  and  there  were  45  joint-stock 
banks.   Therefore,  at  or  about  the  time  of  the  organization 


[193 


of  the  London  and  Westminster  Bank,  there  were  in  England 
about  745  banks  and  banking  offices  in  addition  to  the  Bank 
of  England  and  its  12  branches.   We  are  without  information 
as  to  the  resoiiirces  of  these  banks,  other  than  the  Bank  of 
England.   It  is  of  interest  to  note  that  Barclays  Bank,  which 
absorbed  the  London  and  Westminster  in  1918,  had  according 
to  a  recent  report  over  1400  branches.    The  joint-stock  banks 
of  England  and  Wales  now  number  only  about  22  and  the 
private  banks  7 — say,  about  29  in  all — but  they  have  in  the 
neighborhood  of  6,300  branches.    This  great  decrease  in  the 
number  of  banks  and  increase  in  branches  is  due  to  the  policy 
of  bank  consolidations  which  has  been  a  marked  feature  of 
English  banking  for  so  many  years  and  especially  during  the 
last  two  or. three  years.    On  December  31,  1919,  the  total  re- 
sources of  the  joint-stock  banks  of  England  and  Wales  were 
about  £2,300  million.     Of  these  vast  resources,  £1742  million 
— say,   76  per  cent. — ^were  held   by  five  great  banks.     In 
alphabetic  sequence,  these  banks,  their  liabilities  and  equiva- 
lent resources  on  December  31,  1919,  were  as  follows: 

THE  ^'BIG  FIVE''  JOINT-STOCK  BANKS 

In  Millions  Sterling 


Capital 
and 
Name  Reserves 

Barclays 15,8 

Lloyds 19,1 

London  Co.,  Westminster 

and  Parr's 17,3 

London  Joint  City  and 

Midland 16,8 

National  Provincial  and 

Union 15,0 

84,0 


Accept- 
ances and 
Endorse- 
ments 

Deposits 
(inc.  Un- 
divided 
Profits,  etc.) 

Total 
Liabilities 

13,6 

296,1 

325,5 

32,1 

325,9 

377,1 

23,7 

305,8 

346,8 

29,0 

373,0 

418,8 

6,0 

252,4 

273,4 

104,4 


1553,2 


1741,6 


ttll 


ilfe 


Chapter  VI 
The  Bank  Charter  Act  of  1 844 

BEFORE  taking  up  the  consideration  of  the  legislation  of 
1844  we  may  make  note  here,  for  the  sake  of  the  record,  of 
some  items  of  importance  in  regard  to  the  Bank.  The  liabil- 
ity of  the  stockholders  of  the  Bank  of  England  is  limited  to 
the  amount  of  their  stock.  In  1722  the  reserve  fund  or  Rest 
was  established,  never  to  be  allowed  to  run  below  three  mil- 
lion pounds.  This  added  to  the  strength  of  the  Bank  and 
made  it  possible  to  equalize  dividends  which  theretofore  had 
fluctuated  greatly.  In  175 1  the  administration  of  the  debt 
was  entrusted  to  the  Bank  and  in  1826  the  Bank  was  given 
authority  to  establish  branches;  of  these,  there  are  now  ten, 
located  respectively  at  Birmingham,  Bristol,  Hull,  Leeds, 
Liverpool,  Manchester,  Newcastle,  Plymouth,  and  the  West- 
ern and  Law-Courts  Branches,  London.  The  notes  of  the 
Bank  were  made  a  legal  tender  in  1833. 

Bank  Statements  in  England 

'In  1833  the  Bank  was  required  to  render  weekly  state- 
ments to  the  Chancellor  of  the  Exchequer,  which  statements 
were  to  be  consolidated  and  published  every  three  months  in 
the  London  Gazette.  The  statements  published  by  the  Bank 
are  very  meagre  and  do  not  give  one  a  complete  view  of  its 
afFairs.  For  comparison  of  one  period  with  another,  too,  they 
are  of  little  value,  as  it  is  the  practice  of  the  Bank  to  reduce 
the  amount  of  its  securities  and  deposits  by  any  borrowing 
which  it  carries  out  and  as  it  probably  makes  other  adjust- 
ments which  are  not  of  public  record.  After  1875  it  discon- 
tinued publishing  the  amount  of  discounted  bills  which  it 

194] 


ENGLISH  PUBLIC  FINANCE 


[195 


held.  After  1877  it  ceased  publishing  the  London  bankers* 
balances.  After  1880  the  separation  formerly  made  between 
notes  issued  by  the  branches  and  in  London  was  no  longer 
made.  To  an  American  banker  accustomed  to  the  rigid 
supervision  given  to  the  afFairs  of  the  banks  of  the  United 
States  by  State  and  Federal  governments  and  to  the  lime- 
light of  publicity  which  is  turned  on  the  afFairs  of  our  banks 
the  lack  of  such  supervision  in  Great  Britain  and  the  failure 
to  require  publicity  is  a  surprise.  It  is  because  of  such  failure 
to  enjoin  any  uniform  system  of  accounting  or  of  reporting 
that  it  is  so  difficult  to  make  a  really  thorough  and  scientific 
study  of  English  banking.  Apropos  of  this  the  London 
Economist  in  its  Banking  Number  issued  May  17,  1919,  says: 
"The  figures  published  weekly  by  the  Bank  are  at  all  times 
full  of  snares  for  the  unwary  investigator,  and  are  more  so 
than  ever  in  wartime,  owing  to  the  very  complicated  business 
that  has  to  be  done  by  the  Bank,  and  the  consequent  cross 
currents  that  are  concealed  behind  the  inarticulate  reticence 
of  the  items  in  its  return.  Any  future  historian  who  relies  too 
closely  on  the  Bank's  figures  for  information  is  thus  likely 
to  flounder  up  to  his  neck." 

The  Bank  Charter  Act  of  1844 

Recurrent  commercial  crises,  and  especially  the  crisis  of 
1836-1839  which  brought  the  Bank  to  the  verge  of  ruin,  led 
English  bankers  and  economists  of  the  time  to  make  ex- 
haustive studies  of  the  causes  of  such  events.  The  rule  which 
had  been  formulated  by  the  Bank  for  the  conduct  of  its 
business  was  as  follows:  First,  the  reserve  kept,  composed 
of  bullion  and  of  Securities,  was  to  be  equal  to  its  liabilities. 
Second,  the  regulation  of  the  note  circulation  was  left  to  the 
public  through  the  natural  movement  of  the  foreign  ex- 


I' 


196] 


BANKERS  TRUST  COMPANY 


changes.  Third,  whether  the  demands  on  the  Bank  came 
from  at  home  or  abroad,  it  was  to  maintain  a  metallic  reserve 
equal  to  one-third  of  its  liabilities.  This  supposed  rule  it  was 
difficult  invariably  to  observe.    In  fact  it  was  often  broken. 

A  heavy  drain  of  specie  in  1839  carried  down  the  reserve 
to  a  nominal  amount.  The  condition  of  the  Bank  became 
so  serious  that  it  was  only  saved  from  failure  by  the  use  of 
heroic  measures  the  most  important  of  which  was  a  large 
loan  from  the  Bank  of  France  which  had  been  founded  in  1800 
by  Napoleon. 

It  was  evident  to  the  thoughtful  banking  men  of  the  day, 
and  to  other  students  of  finance,  that  steps  must  be  taken  to 
safeguard  the  Bank's  reserves  in  future.  It  was  desirable  also, 
if  possible,  to  stop  these  recurring  periods  of  distress  in  the 
business  world.  Following  a  customary  English  method  for 
dealing  with  difficult  problems,  a  parliamentary  committee 
was  appointed  to  examine  into  the  causes  of  the  trouble  and  to 
suggest  a  remedy.  This  committee  sat  for  over  five  years  and 
asked  more  than  14,000  questions  without  reaching  any  defi- 
nite conclusion  or  even  presenting  a  report.  Finally  Sir 
Robert  Peel,  then  Prime  Minister,  decided  that  it  was  time 
to  bring  matters  to  a  head.  Therefore,  taking  advantage  of 
a  clause  in  the  law  which  empowered  the  Government  to  sus- 
pend the  Bank's  charter  in  1845,  he  brought  forward  a  bill 
which  became  the  Bank  Charter  Act  of  1844. 

Convinced  that  the  source  of  the  trouble  was  due  to  over- 
issues of  currency,  he  sought  to  devise  a  plan  which  would 
cure  this  evil.  He  proposed  to  take  away  from  the  private 
and  joint-stock  banks  the  right  of  issue  and  to  concentrate 
all  such  rights  in  the  Bank  of  England.  Further  to  guard 
against  over-issues  he  proposed  that,  save  for  a  minimum 


ENGLISH  PUBLIC  FINANCE 


[197 


amount,  all  issues  of  the  Bank  should  be  covered  by  an 
equivalent  amount  of  specie,  especially  reserved  for  their 
redemption. 

Provisions  of  the  Act 

The  law  based  on  these  propositions  provided  as  follows: 

1.  After  August  31,  1844,  the  Bank  of  England  was  to  be 
divided  into  two  departments,  the  issue  department  and  the 
banking  department.  Securities  to  the  amount  of  £14,000,- 
000,  of  which  the  perpetual  Government  debt  of  £11,000,000 
was  to  form  a  part,  were  to  be  transferred  to  the  issue  depart- 
ment; also  all  the  gold  coin  and  gold  and  silver  bullion  not 
needed  in  the  banking  department.  The  issue  department 
was  to  give  back  to  the  banking  department  an  amount  of 
notes  equal  to  the  securities,  coin  and  bullion  so  transferred 
to  it.  It  was  provided  that  the  silver  in  the  issue  department 
should  never  exceed  one-fourth  of  the  gold. 

2.  The  limited  rights  of  issue  continued  to  bankers  al- 
ready having  such  rights,  as  they  lapsed,  were  to  the  extent 
of  two-thirds  thereof,  to  revert  to  the  Bank.   Thus  it  is  that 
today  the  Bank  has  a  right  of  issue  against  securities  of  , 
£4,450,000  in  excess  of  the  original  £14,000,000. 

3.  The  Bank  was  exempted  from  all  stamp  duties  on  its 
notes.  In  lieu  thereof  it  was  to  pay  the  Government  a  lump 
sum  of  £180,000  a  year. 

4.  The  Bank  was  obligated  to  buy  standard  gold  when- 
ever offered  to  it,  giving  in  payment  its  notes  at  £3  17s  gd 
per  ounce. 

5.  Weekly  accounts  in  a  specified  form  were  to  be  sent  to 
the  Government  and  published  in  the  London  Gazette  weekly, 
instead  of  quarterly  as  required  by  the  Act  of  1833. 


i 


ii 

■ 

It 


11 


198 1 


BANKERS  TRUST  COMPANY 


This  division  of  the  functions  of  the  Bank  into  two  depart- 
ments has  been  severely  criticized  as  arbitrary  and  unscien- 
tific. 

Suspensions  of  the  Act 

The  result  of  the  legislation  was  to  put  the  management 
of  the  Bank  in  times  of  crises  in  a  strait-jacket,  as  far  as  notes 
were  concerned,  from  which  they  could  escape  only  by  special 
enabling  legislation  by  Parliament.  This  has  been  had  four 
times  in  the  history  of  the  Bank — in  1847,  in  1857,  in  1866  and 
in  1914.  The  mere  fact  that  additional  notes  could  be  issued 
has  of  itself,  in  each  case,  been  sufficient  to  allay  the  fears  of 
the  business  community.  The  increase  made  in  the  amount 
of  uncovered  note  issue  in  the  earlier  periods  was  trifling, 
while  in  the  last  instance  an  important  increase  was  made 
unnecessary  by  the  issuance  of  the  Government  Treasury 
notes.  As  a  matter  of  record  it  may  be  noted  that  for  a  couple 
of  days  while  Treasury  notes  were  being  printed  there 
was  an  excess  fiduciary  issue  of  Bank  notes  amounting  to 
£3,043,000. 

Under  the  Federal  Reserve  System  of  the  United  States 
and  of  the  Continental  statte  banks,  notes  are  created  and 
issued  on  the  security  of  discounted  bills  and  on  the  specie  re- 
serve. Thus  theoretically  the  volume  of  notes  is  responsive 
to  the  requirements  of  business,  expanding  and  contracting 
with  the  periods  of  activity  and  quietude.  On  the  contrary, 
with  the  Bank  of  England  the  note  issue  can  only  be  in- 
creased against  the  deposit  of  specie  in  the  issue  department. 
As  the  bank  carries  substantially  the  entire  specie  reserve, 
such  deposits  can  only  be  made  by  the  withdrawal  of  gold 
from  the  banking  department,  thus  weakening  the  reserve 
against  deposits  and  therefore  the  confidence  of  the  business 


ENGLISH  PUBLIC  FINANCE 


[199 


community  just  at  a  time  when  the  contrary  conditions  should 
prevail.  Therefore  there  is  a  growing  feeling  on  the  part  of 
many  bankers  that  the  two  departments  of  the  Bank  should 
be  merged  and  the  note  issuing  powers  modernized. 

However,  in  times  of  great  stress,  such  as  the  world  has  just 
been  passing  through,  the  best  of  systems  tends  to  give  way 
to  emergency  measures  which  cannot  be  defended  on  any 
principle  of  sound  banking.  The  Bank  of  England  has  come 
through  the  storm  in  strong  condition  and. has  done  yeoman 
service  in  upholding  the  hands  of  the  Government  and  of  the 
business  community.  This  does  not  change  the  fact  that 
upon  a  return  to  normal  conditions  it  may  be  wise  definitely  to 
repeal  the  Act  of  1844  in  favor  of  a  system  based  upon  banking 
experience  gained  since  that  time. 


li 

'1 


ill 


Chapter  VII 
The  Government  of  the  Bank 

npHE  method  by  which  the  Bank  of  England  is  governed 
-^  IS  so  unique  and  so  different  from  that  observed  in  con- 
nection with  any  other  bank  that  it  will  be  of  interest  to 
consider  it  in  some  detail.  The  bank  is  governed  by  a  board 
of  twenty-four  directors,  a  Governor  and  a  Deputy  Governor. 

TAe  Directorate 

The  Board  of  Directors  is  self-electing.  In  theory,  a  certain 
portion  go  out  annually,  remain  out  a  year,  and  are  subject  to 
re-election  by  the  proprietors,  but  in  fact  they  are  nearly  al- 
ways re-elected  after  a  year.  This  has  been  the  unbroken 
practice  for  many  years.  When  a  vacancy  occurs  by  death 
ot  resignation  it  is  filled  by  an  election  by  the  board.  It  is 
the  practice  in  electing  new  members  to  choose  young  men, 
usually  men  connected  with  old  established  mercantile  firms 
of  London.  The  status  which  is  given  by  an  election  to  the 
board,  both  to  the  individual  who  fills  it  and  to  the  firm  of 
merchants  to  which  he  belongs,  is  considerable.  The  selection 
of  men  to  receive  this  honor  is  made  with  great  care  for  a 
reason  which  will  now  be  stated. 

The  Governor  and  Deputy  Governor 

The  ofllices  of  Governor  and  Deputy  Governor  are  given 
in  rotation.  The  Deputy  Governor  always  succeeds  the 
Governor  and  usually  the  oldest  director  who  has  not  been 
in  oflSce  becomes  Deputy  Governor.  Occasionally,  for 
200] 


ENGLISH  PUBLIC  FINANCE 


[201 


special  reasons,  the  election  for  the  Deputy  Governor  is  not 
always  made  in  rotation,  but  except  in  rare  cases  a  director 
must  serve  as  Governor  and  Deputy  Governor  about  the  time 
when  his  turn  comes.  On  the  other  hand,  he  will  not  be  asked 
to  serve  much  before  his  turn.  It  is  usually  about  twenty 
years  from  the  time  a  man  is  first  elected  a  director  before  he 
arrives,  as  it  is  called,  "at  the  Chair.**  Because  it  is  important 
that  the  men  who  fill  the  offices  of  Governor  and  Deputy 
Governor  should  still  be  in  the  vigor  of  life,  the  choice  of  new 
directors  is  always  made  from  among  young  men.  It  might 
be  feared  that  such  a  course  would  place  upon  the  Board  men 
who  would  be  overambitious  or  would  take  chances  which 
older  men  would  not  take,  but  the  danger  of  such  a  happening 
is  overcome  by  the  fact  that  some  of  the  directors  retire 
annually.  By  courtesy  it  is  always  the  young  directors. 
Those  who  have  served  as  Governor  always  remain.  There- 
fore the  young  part  of  the  Board  is  the  fluctuating  part,  and 
the  older  part  is  the  permanent  part.  The  younger  men, 
therefore,  have  but  little  influence. 

The  Committee  of  Treasury 

As  a  further  provision  against  any  immature  methods  of 
handling  the  aflTairs  of  the  Bank,  the  older  members  of  the 
Board  form  a  standing  committee  of  indefinite  powers.  This 
is  called  the  Committee  of  Treasury.  No  precise  description 
has  ever  been  given  of  the  powers  which  this  committee  exer- 
cises. They  appear  to  be  of  a  general  supervisory  nature  and 
in  particular  to  control  the  relations  and  negotiations  between 
the  Bank  and  the  Government. 

By  immemorial  usage,  the  directors  of  the  Bank  of  Eng- 
land cannot  be  themselves  professional  bankers.  In  the  old 
times  every  bank  was  supposed  to  be  more  or  less  in  opposi- 


I  ill 


11  if 


m 


I'  r»   '11 


i 


I  i 

f 


■P^i 


■ 


202] 


BANKERS  TRUST  COMPANY 


tion  to  every  other  bank.  Therefore  it  was  not  thought  wise 
that  any  London  banker  should  have  a  chance  of  being  a 
Bank  director  and  no  banker  today  would  think  of  being 
such  a  director.  However,  this  does  not  prevent  the  selection 
for  directors  of  men  who  are  connected  with  merchant 
banks  which  do  not  receive  deposits  payable  in  small  sums 
or  on  demand. 

The  Oncers 

In  the  Bank  of  England  there  is  no  fixed  executive.  The 
Governor  and  Deputy  Governor  who  form  the  executive,  as 
a  rule  change  every  two  years.  They  are  expected  to  be  con- 
stantly present  at  the  bank,  to  see  all  applicants  for  advances, 
to  carry  on  the  almost  continuous  correspondence  between 
the  Bank  and  its  largest  customer,  the  Government,  and 
to  bring  all  necessary  matters  before  the  Court  of  Directors 
or  the  Committee  of  Treasury.  In  a  word,  to  do  very  much 
the  same  as  falls  to  the  lot  of  the  manager  in  most  companies. 
There  are,  of  course,  permanent  heads  of  departments,  and 
it  is  understood  that  during  the  war  some  important  new  de- 
partments were  created.  While  these  men  have  high  standing 
in  the  Bank  and  much  authority  in  their  respective  depart- 
ments, yet  they  are  essentially  subordinate.  No  one  of  them 
is  like  the  general  manager  of  an  ordinary  bank. 

A  changing  management,  such  as  the  one  by  which  the 
Bank  is  governed,  would  not  be  thought  of  in  connection 
with  any  other  corporation.  It  also  seems  strange  that 
trained  bankers  should  be  excluded  from  the  Board  of  Direc- 
tors of  the  Bank  which  up  to  the  present  time  has  been  ad- 
mittedly, in  a  sense,  the  reserve  bank  for  the  world's  com- 
merce. 


ENGLISH  PVBLIC  FINANCE 


[203 


T/ie  Court  and  Committees 

The  directors  of  the  bank,  together  with  the  Governor  and 
Deputy  Governor,  twenty-six  persons  in  all,  are  known  as 
"The  Court."  They  meet  once  a  week  and  usually  sit  for 
a  very  short  time  only;  say,  from  about  eleven  or  twelve 
o'clock  until  one  or  o|ie-thirty.  It  has  been  said  that  if  they 
were  to  sit  for  four  hours  there  would  be  a  "panic  solely  from 
that.'' 

The  Court  of  Directors  is  divided  into  certain  committees. 
In  addition  to  the  Committee  of  Treasury  already  described, 
there  is  a  Committee  of  Daily  Waiting,  a  Committee  for  Law- 
suits and  the  Management  of  Branch  Banks,  a  Committee 
for  the  House  and  Servants  and  Clerks,  a  Committee  of  In- 
spection for  the  Cashier's  Office  and  a  Committee  of  Inspec- 
tion for  the  Accountants'  Office.  In  addition  to  these  com- 
mittees special  committees  are  from  time  to  time  appointed  as 
occasion  may  require. 

The  Committee  of  Daily  Waiting  consists  of  three  direc- 
tors in  rotation  from  the  whole  body.  Their  attendance  is  at 
II 130  daily  and  they  are  required  to  remain  until  all  that  part 
of  the  business  of  the  day  which  is  usually  referred  to  them  is 
concluded.  All  bills  offered  for  discount  in  London  are  sub- 
mitted to  this  committee  and  all  bills  discounted  at  the 
country  branches,  except  local  bills,  are  shown  to  them  on  the 
following  day.  They  likewise  have  charge  of  all  bullion  not 
required  by  the  cashiers  for  daily  wants.  The  duties  of  the 
other  committees  are  evident  from  their  titles. 


The  Clerical  Machinery 


<€ 


The  clerical  machinery  of  the  Bank  is  divided  into  the 
Cash  Side"  and  the  ^^ Accountant  Side."   The  "Cash  Side," 


»ll 


J    -* 


li'i); 


I' 


It 


204] 


BANKERS  TRUST  COMPANY 


which  IS  under  the  immediate  supervision  of  the  Chief  Cash- 
ier, comprises  the  transaction  of  all  business  where  actual 
cash  is  concerned,  together  with*  the  necessary  bookkeeping 
which  it  involves.  The  latter  division,  under  charge  of  the 
Chief  Accountant,  takes  cognizance  of  all  matters  of  pure 
bookkeeping  where  no  actual  cash  is  concerned,  such  as  those 
which  relate  to  the  national  debt  account,  registration  of 
bank  notes  and  kindred  work. 

The  Bank  has  a  large  staff  of  employees  for  whose  benefit 
there  is  maintained  a  provident  society  to  promote  life  insur- 
ance among  their  members  and  the  payment  of  annuities  for 
widows  of  bank  clerks  and  porters.  There  is  a  well  appointed 
library  and  reading  room.  There  is  a  physician  in  attendance 
who  is  called  the  Medical  Officer.  He  looks  after  the  health 
of  the  clerks  and  other  employees.  The  clerical  force  of  the 
Bank  is  employed  on  a  strictly  civil  service  or  competitive 
plan.  Men  entering  the  Bank  in  their  youth  frequently 
spend  their  entire  lives  in  its  service. 

TAe  Bank  Building 

The  building  of  the  Bank  of  England  is  located  in  the 
heart  of  what  is  known  as  "The  City/'  the  corporate  center 
of  London  now  chiefly  identified  with  the  interests  of  city 
government  and  finance.  In  this  section  is  the  Mansion 
House,  where  the  Mayor  presides  over  the  destinies  of  the 
city.  Nearby  is  the  Royal  Exchange  founded  in  the  days  of 
Queen  Elizabeth,  and  the  Stock  Exchange  the  traditions  of 
which  also  date  back  to  the  very  early  days.  Lombard  Street, 
the  home  of  the  goldsmiths  and  for  many  years  the  chief 
financial  street  in  London,  is  nearby.  The  head  offices  of  the 
joint-stock  banks  and  of  the  great  private  banking  houses  are 
not  far  away* 


ENGLISH  PUBLIC  FINANCE 


[205 


The  entrance  to  the  bank  is  from  Threadneedle  Street 
through  a  large  arched  gateway  which  leads  into  a  quad- 
rangular court  from  which  communication  may  be  had  to  all 
parts  of  the  building.  This  court  is  guarded  by  a  porter 
arrayed  in  bright  crimson  and  gold  lace  and  bearing  a  staff; 
while  the  bank  messengers  are  dressed  in  swallow-tail  coats 
of  a  delicate  slalmon  color  with  silver  buttons,  flaming  scarlet 
waistcoats,  black  trousers  and  high  silk  hats. 

In  the  basement  of  the  bank  are  barracks  wherein  36 
soldiers  are  quartered  from  7  o'clock  every  evening  until  the 
next  morning.  This  custom  arose  at  the  time  of  the  Lord 
George  Gordon  riots  in  June,  1780,  when  the  bank  was  threat- 
ened by  a  mob.  In  addition  to  the  soldiers  there  is  a  body  of 
watchmen  well  trained  in  the  use  of  the  ample  arrangements 
provided  for  in  case  of  fire. 

The  building  covers  about  eight  acres  of  ground.  The  first 
stone  was  laid  in  1732.  It  is  erected  around  nine  courtyards, 
the  largest  one  of  which  has  a  substantial  amount  of  green 
sward  with  one  or  two  beautiful  elm  trees  and  some  shrubbery. 
There  is  also  a  fountain  playing  beneath  the  trees.  For  the 
first  forty  years  of  its  existence  the  Bank  was  domiciled  in  the 
hall  of  the  Grocers'  Company,  but  in  1734  moved  into  the 
present  building.  In  the  great  hall  of  the  bank  building  there 
is  a  statue  of  William  III,  in  whose  reign,  it  will  be  remem- 
bered, the  bank  was  founded. 


ENGLISH  PUBLIC  FINANCE 


[207 


'     ft* 


\: 


Chapter  VIII 
The  Scotch  and  Irish  Banks 

TN  what  goes  before  we  have  confined  our  studies  to  the 
-^  status  of  banking,  to  use  the  words  of  one  of  the  Bank 
Charter  Acts,  "in  that  part  of  Great  Britain  called  England/' 

The  first  notice  of  banking  in  Scotland  which  occurs  in 
the  statute  books  is  an  act  of  King  William  III  passed  in  1695, 
under  which  the  Bank  of  Scotland  was  established.  The 
Bank  of  Scotland  remained  the  cinly  bank  in  Scotland  until 
the  year  1727.  At  the  date  of  the  latest  available  reports 
(December,  191 8)  there  were  eight  joint-stock  banks  in  Scot- 
land with  1,249  branches.  These  banks  had  total  resources 
of  £273,658,000.  Their  combined  note  issues  on  December 
31,  1919,  amounted  to  £28,705,345,  comparing  with  £7,744,- 
000  December  31,  1913,  an  increase  of  £20,961,345. 

The  Bank  of  Ireland  was  established  in  1783.  Its  privi- 
leges resemble  those  of  the  Bank  of  England.  At  the  close 
of  191 8  there  were  nine  joint-stock  banks  in  Ireland  with  848 
branches  and  combined  resources  of  £175,739,000.  The  out- 
standing note  issues  December  31,  1919,  were  £30,532,435, 
comparing  with  £8,074,000  December  31,  1913,  an  increase 
of  £22,458,435. 

Note  Circulation — How  Regulated 

The  bank  note  circulation  of  the  Scotch  and  Irish  banks 
is  regulated  by  the  Bank  Acts  of  1845.  These  Acts  authorized 
the  Scotch  banks  to  make  uncovered,  or  fiduciary,  issues  fixed 
at  an  aggregate  of  £3,087,209.  As  a  result  of  the  failure  of  the 
Western  Bank  of  Scotland  in  1858  and  of  the  City  of  Glasgow 
Bank  in  1878  the  authorized  fixed  issue  was  reduced  and  is 
now  £2,676,350.  The  Irish  banks  were  authorized  to  make 
206] 


uncovered  issues  fixed  at  an  aggregate  of  £6,354,494.    There 
has  been  no  change  in  this  authorization. 

The  Scotch  and  Irish  banks  may  increase  their  circulation 
to  any  extent  in  accordance  with  the  public  demand,  pro- 
vided that  they  have  gold  or  silver  at  their  principal  places  of 
issue  to  an  amount  not  less  than  the  amount  of  such  increase. 
The  amount  of  silver  against  which  notes  may  be  issued  must 
not  exceed  "one-fourth  part  of  the  gold  coin  held.'* 

The  amount  of  notes  which  may  be  outstanding  against 
specie  is  determined  by  averaging  the  note  issues  and  the 
specie  cover  every  four  weeks.  This  provision  of  the  law 
makes  it  possible  temporarily  to  increase  note  issues  without 
corresponding  cover. 

The  specie  held  in  Scotland  and  Ireland  does  not  form  a 
special  security  against  the  note  circulation.  It  is  an  asset 
held  against  the  general  liabilities  of  the  issuing  bank.  It  will 
be  remembered  that  in  the  case  of  the  Bank  of  England  the 
specie  securing  the  notes  in  excess  of  the  fiduciary  issue  is  held 
in  the  issue  department  solely  as  a  reserve  for  the  notes  issued 
against  it,  while  no  notes  can  be  issued,  for  ever  so  brief  an 
interval,  unless  the  specie  is  actually  on  deposit. 

By  the  terms  of  the  Currency  and  Bank  Notes  Act  of 
August  6,  1914,  the  note  issues  of  the  Scotch  and  Irish  banks 
were  made  legal  tender  and  authority  was  given  to  substitute 
the  Government  Treasury  notes  for  specie  as  a  cover  for  notes 
issued  in  excess  of  the  authorized  fixed,  or  fiduciary,  issues. 
By  a  royal  proclamation  made  in  December,  I9i9,the  legal 
tender  status  was  withdrawn  from  Scotch  and  Irish  bank  notes 
to  take  eflFect  from  January  i,  1920,  and  the  pre-war  status 
restored,  but  no  change  was  made  in  regard  to  the  provision 
whereby  Government  Treasury  notes  may  be  used  as  cover  for 
the  note  issues  in  excess  of  the  fixed,  or  fiduciary,  totals. 


i; 

it 


m 


I 


1 


208] 


BANKERS  TRUST  COMPANY 


Tabl 


es 


NATIONAL  DEBT 

United  Kingdom — Great  Britain  &  Ireland 

Approximate  Amount — March  31,  1920 
For  further  details  see  numbered  descriptive  notes  following  table 

000  omitted 

Interest                               Redeemable  Out- 
Title  of  Loan             Rate            Payable                     or  Payable  standing 
Funded  Debt  £ 

1.  Consolidated  Stock  .     2K*   5  Ja.,  Ap.,  Jy..  Oct.  After  s  April,  1923  279,764 

2.  Annuities 2H     5  Ja.,  Ap.,  Jy.,  Oct.  After    s  Jan.,  1905  2,689 

3.  Annuities 2K     5  Ja.,  Ap.,  Jy.,  Oct.  After    5  Jan.,  1905  21,528 

Total  Consols        t30 1.400 

4.  Debt  to  Bank  of 

England 2K  'Perpetual  11,015 

5.  Debt  to  Bank  of 

Ireland 2K  Perpetual  2.630 

6.  Total  Funded  Debt    .  315,000 

7.  Terminable  Annul  ties 
— Estimated  Capital 

Value 20,000 

8.  Unfunded  Debt. 

9*  Ways  and  Means    • 

Advances 204,900 

10.  War  Loan 3K     i  Mar.  and  Sept.       Z^*^^''    ^  ^^^"  ^^^f\       62,700 

lOn        I  Mar.,  1928 1 

11.  War  Loan 4K     i  June  and  Dec.        <^^^^    i  Dec,  1925! 

I  On        I  Dec.,  1945! 

12.  War  Loan $        i  June  and  Dec.        <^^^    ^  l^^^*  ^^^^\  i,949.300 

I  On        I  June,  1947I     "'^'"*' 

13.  War  Loan 4      15  April  and  Oct.         <^^^  ^^  ?!^^"  ^^^^\       62.300 

I  On      15  Oct..  1942 J 


Carried  forward 
fTotal  correct — items  approximate. 


2.627.200 


ENGLISH  PUBLIC  FINANCE 


[209 


NATIONAL  DEBT— Continued 
United  Kingdom — Great  Britain  &  Ireland 

Approximate  Amount — March  31,  1920 
For  further  details  see  numbered  descriptive  notes  following  table 

000  omitted 


Title  of  Loan 

Brought  forward 

National  War  Bonds 

14.  First  Series  .  . 
First  Series  .  . 
First  Series  .  . 
First  Series    .  . 

15.  Second  Series  . 
Second  Series  . 
Second  Series  . 
Second  Series  . 

16   Third  Series  .  . 

Third  Series  .  . 

Third  Series  .  . 

Third  Series  .  . 

17.  Fourth  Series  . 
Fourth  Series  . 
Fourth  Series  . 

18.  Funding  Loan  . 

19.  Victory  Bonds  . 

20.  Exchequer  Bonds 
Exchequer  Bonds 
Exchequer  Bonds 
Exchequer  Bonds 


Interest 
Rate  Payable 


5 

5 

5 

4 

5 

5 

5 

4 

5 

5 

5 

4 

5 

5 

4 


I  April 
I  April 
I  April 
I  April 
I  April 
I  April 
I  April 
I  April 
I  Mar. 
I  Mar. 
I  Mar. 
I  Mar. 
I  Feb. 
I  Feb. 
I  Feb. 


and  Oct. 
and  Oct. 
and  Oct. 
and  Oct. 
and  Oct. 
and  Oct. 
and  Oct. 
and  Oct. 
and  Sept 
and  Sept. 
and  Sept. 
and  Sept. 
and  Aug. 
and  Aug. 
and  Aug. 


4 

3 
5 
5 
5 


I  May  and  Nov. 

I  Mar.  and  Sept. 

28  Jan.,  and  July 
I  June  and  Dec 
5  April  and  Oct. 
I  April  and  Oct. 


Redeemable 
or  Payable 


Out- 
standing 

£2,627.200 


On 

On 

On 

On 

On 

On 

On 

On 

On 

On 

On 

On 

On 

On 

On 


Exchequer  Bonds.    .     SM     i  Feb.  and  Aug.  On 

21.  Treasury  Bills  .   .   . 

22.  War  Savings  Certifi- 
cates  •••«... 

23.  Other  Capital 
Liabilities 

Total  Internal  Debt  (Carried  forward) 


I  Oct.,  1922 
I  Oct.,  1924 
I  Oct.,  1927 
I  Oct.,  1927 
I  Apr.,  1923 
I  Apr.,  1925 
I  Apr..  1928 
I  Apr.,  1928 
I  Sept.,  1923 
I  Sept., 1925 
I  Sept.,  1928- 
I  Sept., 1928 
I  Feb.,  1924 
I  Feb.,  1929 
I  Feb.,  1929J 

/After  .  I  May,  1960'! 
\On        I  May,  1990/ 

After    I  Sept.,  1920 

On  28  Jan.,  1930 
On  16  Dec.,  1920 
On  5  Oct.,  192 1 
After  I  Oct..  19 IQ 
fi  April,  1922 
\i  Feb.,  192s. 
But  see  note  (20) 


•  1,508,800 


409,100 
3S9.SOO 


319,800 


1,107.000 


274,800 


47.300 


£6.653.500 


2I0] 


BANKERS  TRUST  COMPANY 


NATIONAL  DEBT— Continued 

United  Kingdom — Great  Britain  &  Ireland 
Approximate  Amount — March  31,  1920 


For  further  details  see  numbered  descriptive  notes  following  table 

000  omitted 

Interest 
Rate  Payable 

Internal  Debt  brought  forward 
External  Debt 


Title  of  Loan 


Redeemable 
or  Payable 


Out- 
standing 

£6,653.500 


24.  To  United  States 
Govt.  14.212,835.993 

25.  Anglo-French  Loan 
$500,000,000,  half 

taken  into  account  .5       15  April  and  Oct. 

26.  Five  Year  Secured 

Notes.  1134.458,000.     sK     i  May  and  Nov. 

27.  Three  Year  Conv. 

Notes  |ioi,6oo,ooo.      sK     i  Feb.  and  Aug. 

28.  Ten  Year  Conv.  Bonds  sK     i  Feb.  and  Aug. 
1148,400,000 

29.  Twenty  Year  Gold 

Bonds  I143.587.000  .     sK     I  Feb.  and  Aug. 

30.  Other  Debt  Created 
under  War  Loan  Acts 

Total  External  Debt 

31.  Grand  Total  Direct  Debt 

32.  Guaranteed  Loans 
Guaranteed  Stock 
(created  under  Irish 

Land  Act,  1903)    .    .     2^%    Jan.  and  July 
Guaranted  Stock 
(created  under  Irish 
Land  Acts,  1903  and 

1909) 3 

Local  Loans  Stock  .     3 
Met.  Police  Deb. 

Stock 3 

Egyptian  Government 
Guaranteed  Loan  3 

Greek    Guar.     Gold 
Loan  of  *98    .    .    .    .     2K 


On  IS  Oct..  1920 

On  I  Nov.,  192 1 

On  I  Nov.,  1922 

On  I  Aug.,  1929 

On  I  Feb.,  1937 


866,831 

51.400 

27,633 

20,883 
30,504 

29.514 

292,035 
£1.318,800 

£7,972,300 


After    I  Nov.,  1933 


57,213 


Jan.  and  July 
S  Ja.,  Ap.,  Jy.,  Oct. 

Jan.  and  July 

Mar.  and  Sept. 


April  and  Oct. 


After    3  Dec.,  1939 
After       Apr.,  19 12 

On        I  July,  1920 

At  any  time 

Redeemable  at  par 
by  annual  drawings 


Guaranteed  Loans  forwarded 


.45.229 
77.058 

450 

6»288 

4.300 


£190,538 


ENGLISH  PUBLIC  FINANCE 


[  211 


NATIONAL  DEBT— Continued 

United  Kingdom — Great  Britain  &  Ireland 
Approximate  Amount — March  31,  1920 

For  further  details  see  numbered  descriptive  notes  following  table 

000  omitted 

Interest  Redeemable  Out- 

Title  of  Loan  Rate  Payable  or  Payable  standing 

Guaranteed  Debt  brought  forward  £190,538 

Mauritius  Stock, 
1940,  Guar,  by  Imp, 

Gov 3         I  Jan.  and  July  On        i  Jan.,  1940  600 

Sudan    Govt.    Gtd. 

Bonds 5K     I  May  and  Nov.  3.500 

Transvaal  Govt.  Gtd.  /.,  -^  "^ 

Stock 3        I  May  and  Nov.       ^^    ^^    i      ay,  1923 1  35,000 

I^On        I  May,  I953j 

Transvaal  Govt.  Gtd. 

Stock 3        I  Jan.  and  July  On        i  July,  1958  5,000 

Turkish  Guaranteed 

Loan 4        I  Feb.  and  Aug.  1855  3.815 

Total  Guaranteed  Debt  238453 

Grand  Total  Direct  and  Guaranteed  Debt  £8,210,753 


DESCRIPTIVE  NOTES 

" Stock "=  Registered  Bonds:  See  Item  33. 

Transfers,  Denominations,  etc.:  See  Item  p.  122. 

I.  Consolidated  Stock: — "Consols."  In  the  session  of  Parliament  of  1751-2  an 
act  was  passed  consolidating  five  different  loans  and  certain  annuities  into  one 
joint  stock  of  3%  annuities.  The  taxes  upon  which  the  interest  of  these  loans 
was  charged  were  carried  to  the  sinking  fund  out  of  which  the  annuities  were 
made  payable  from  June  24,  1752.  This  was  the  origin  of  the  3%  Consolidated 
annuities,  known  in  the  market  from  that  time  as  "Consols."  The  present  issue 
of  2}^%  "Consols"  was  created  under  the  terms  of  the  National  Debt  (Conversion) 
Act  of  1888.  Up  to  April  s,  1889  interest  was  at  the  rate  of  3%  per  annum,  and 
for  the  14  years  ending  with  April  5.  1903  it  was  at  the  rate  of  2^%.  Since  that 
date  the  rate  has  been  2j^%.  Redeemable  at  par  on  or  after  April  5,  1923,  in 
such  order  or  manner  as  Parliament  may  direct.    See  also  p.  122. 

*•  2^%  Annuities  created  under  the  National  Debt  Conversion  of  Stock  Act,  1884. 

3'   2}^%  Annuities  created  in  1853  for  the  purpose  of  redeeming  South  Sea  stock 
and  certain  old  3%  annuities. 


pi 


?!j| 


r:' 


:i^ 


212] 


BANKERS  TRUST  COMPANY 


4.   Debt  to  the  Bank  of  England: — Perpetual  loans  made  in  consideration  of 
franchise  as  follows: — 

Original  Capital:  £  £ 

1694:  Act  5  &  6W.  and  M.C20 1.200,000 

1708:  Act  7  Anne,  c  7 400,000 

1742:  Act  IS  G.  2  c  13 1,600,000 

3,200,000 

Capital  purchased  of  the  South  Sea  Co. 
1721:  Act  8  G.  I.  c,  21  (residue  of  capital  of  £4,000,000 

purchased  of  the  South  Sea  Company)   .     .     .  3i328,300 

Other  Advances  to  Government: 

1716:  Act  G.I  C.8,  Balance  of  £2,000,000  of  Exchequer 

Bills  cancelled 500,000 

1727:    I  G.2  c.8.  Advance  to  Government        ....  1,750,000 

1728:  2  G.2  C.3.  Advance  to  Government  ....  1,250,000 
1746:   19  G.2  c.6.  Exchequer  Bills  delivered   up   to  be 

cancelled 986,800 

£11,015,100 

5.  Debt  to  the  Bank  of  Ireland: — Perpetual  loans  made  in  consideration  of  fran- 

chise as  follows: 

£  s  d 

1782:  Act  21  &  22  G.3  C.16  (Irish)  (Irish  Currency,  £600,000).        5S3.846  3  i 

1797:  Act  37  G.3  cso  (Irish)  (Irish  Currency,  £500,000)     .      .        461,538  9  3 

1808:  Act  48  G.3  c.  103  (Irish  Currency,  £1,250,000)      .      .      .     1,153,846  3  i 

1821:  Act  2  G.4,  C.72  (Irish  Currency,  £500,000)       ....        461,538  9  3 

£2,630,769     4     8 

6.  Total  Funded  Debt: — ^The  above  described  issues,  1-5  inclusive,  are  known  as 
the  Funded  Debt.  The  interest  is  a  charge  on  certain  definite  forms  of  taxation, 
and  is  included  in  the  permanent  or  fixed  annual  charge.     See  also  page  94. 

7.  Terminable  Annuities: — ^These  annuities  were  created  under  diflFerent  acts 
dating  from  the  time  of  George  IV. 

8.  Unfunded  Debt: — ^All  debt,  except  the  Funded  Debt  and  the  Terminable  An- 
nuities, is  technically  known  as  Unfunded  Debt. 

9.  Ways  and  Means  Advances: — ^These  are  book  advances  made  by  the  Bank  of 
England  for  short  terms.     See  text  page  42. 

10.  3H%  War  Loan: — Original  issue,  £350  million.  Issued  in  Nov.,  1914  at  95%. 
Inscribed  stock;  or  bearer  bonds  in  denominations  of  £100,  £500  and  £1,000. 

11.  4/4%  War  Loan: — Original  issue,  £900,857.691.  Issued  June  21  to  July  10, 
1915,  partly  for  cash  at  par  and  partly  [say,  £289,797.921]  in  exchange  for 
"Consols"  and  334%  war  loan.  The  greater  part  of  this  issue  has  been  exchanged 
for  subsequent  war  issues.  Ijascribed  stock ;  or  bonds  to  bearer  in  denominations 
of  £100,  £200,  £500,  £1,000  and  £5,000. 

12.  5%  War  Loan: — Original  issue,  £2,075.814,114.  Issued  Jan.  11  to  Feb.  16,  1917 
at  95  for  cash  and  on  certain  terms  in  exchange  tor  other  previous  issues.  Receiv- 
able on  certain  conditions  in  payment  of  death  duties.  Stock  and  bonds  and  the 
dividends  thereon  are  exempt  from  all  British  taxation  present  or  future  provided 
they  are  in  the  beneficial  ownership  of  a  person  who  is  neither  domiciled  nor 
ordinarily  resident  in  the  United  Kingdom.  Dividends  are  exempt,  without 
regard  to  domicile,  if  the  owner  of  the  stock  or  bonds  is  not  ordinarily  a  resi- 
dent of  the  United  Kingdom.  Inscribed  stock;  or  bonds  to  bearer  in  denomina- 
tions of  £50,  £100,  £200,  £500,  £1,000  and  £5,000.    Interchangeable. 

13.  4%  War  Loan: — Original  issue  £52,418,250.  Issued  simultaneously  with  (12) 
at  par  in  cash  and  on  certain  terms  in  exchange  for  previous  issues.  Interest 
(dividends)  exempt  from  British  Government  taxes  other  than  super  tax.  For 
tax  exemption  in  hands  of  foreigners  see  last  clause  (12).  Inscribed  stock;  or 
bonds  to  bearer  in  denominations  of  £50,  £100,  £200,  £500,  £1,000  and  £5,000.  In- 
terchangeable. 


ENGLISH  PUBLIC  FINANCE 


[213 


Depreciation  Fund:— The  holders  of  4%  and  5%  War  Loan  are  entitled  to  the 
benefit  of  a  Sinking  or  Depreciation  Fund  which  is  under  the  control  of  the  National 
Debt  Commissioners.  This  fund  is  applicable  to  the  purchase  and  cancellation 
of  the  stock  and  bonds  of  this  loan  whenever  the  market  price  of  the  4%  loan  is 
below  100  or  of  the  5%  loan  below  95.     See  item  34. 

14.  National  War  Bonds.  First  Series.  Total  sales  about  £614  million.  Offered 
at  par  Oct.  i,  1917  to  March  31,  1918. 

Exempt  from  all  British  taxation  present  or  future  if  in  the  beneficial  ownership 
of  a  person  neither  domiciled  nor  ordinarily  resident  in  the  United  Kingdom. 
Dividends  are  exempt,  without  regard  to  domicile,  if  the  owner  of  the  stock  or 
bonds  is  not  ordinarily  a  resident  of  the  United  Kingdom.  Interest  on  tne  4/0 
Bonds  exempt  from  British  income  tax  other  than  super  tax.  Received  in  pay- 
ment of  death  duties,  excess  profits  duty  or  munitions  exchequer  payments,  it 
held  for  six  months  prior  to  the  date  of  presentation. 

Convertible:  5%  Bonds  into  5%  War  Loan,  1929-4?  [12]  at  the  rate  of  £100  s% 
War  Loan  for  each  £95  nominal  value  5%  National  War  Bonds  surrendered ;  4 /o 
Bonds  into  4%  War  Loan  1929-42  [13I  at  the  rate  of  £100  War  Loan  for  each  £100 
nominal  value  National  War  Bonds  surrendered. 

Denominations,    £50,    £100,   £500,    £200,  £1,000  and  £5,000.     Issued  in  both 
coupon  and  registered  form;  also  in  registered  coupon  bonds. 
Payable:    5%  Bonds  due  in  1922  at  102;  due  in  1924,  at  103;  due  in  1927.  at  105. 
The  4%  Bonds  are  payable  at  par. 

15.  Second  Series  offered  at  par  April  i,  1918  to  Sept.  30,  1918.  Total  sales  about 
£493  million.  Terms  same  as  first  series.  Payable:  5%  Bonds  due  m  1923  at 
102;  in  1925,  at  103;  in  1928,  at  105.     4%  Bonds  payable  at  par. 

16.  Third  Series— Total  sales  about  £40  million.  Offered  Sept.  30.  1918  to  Jan.  i8' 
1919;  5%  bonds  at  par  and  4%  bonds  at  £101  los.  Payable:  5%  ^onds  due 
Sept.  I.  1923  at  102,  Sept.  i,  1925  at  103.  Sept.  i,  1928  at  105;  4%  bonds  due 
Sept.  I,  1928  at  100.     Other  terms  and  conditions,  same  as  first  series. 

17.  Fourth  Series— Total  sales  about  £596  million.  Offered  Jan.  31,  1919  to  May  31. 
1919;  5%  bonds  at  par;  4%  bonds  at  £101  los.  Payable:  5%  bonds  teb.  i,  1924 
at  102,  Feb.  i,  1929  at  105;  4%  bonds  Feb.  i,  1929  at  100.  Te^ms  and  conditions 
same  as  first  series,  except  this  series  has  no  conversion  right  into  War  Loan. 

18.  4%  Funding  Loan:— Original  issue  about  £409  million.  Offered  at  80  June  12 
to  July  12,  1919.  Sinking  Fund  of  2H%  on  the  nominal  amount  of  the  loan 
originally  created  set  aside  semi-annually  and  any  balance  remaimng  after  payment 
of  interest  applied  to  the  purchase  and  cancellation  of  bonds  if  obtainable  at  or 
under  par.  See  item  34.  Receivable  on  the  basis  of  80  in  payment  of  deatn 
duties  if  held  by  the  deceased  for  six  months  prior  to  death.  Exempt  from  taxation 
in  the  hands  of  persons  neither  domiciled  nor  ordinarily  resident  in  the  Um ted 
Kingdom.  The  interest  (dividends)  on  bonds  held  by  persons  not  ordina.nly 
resident  in  the  United  Kingdom  will  be  paid  free  of  tax  without  regard  to  domiale 
of  owner.  Coupon  and  registered  (either  inscribed  stock  or  registered  certificate). 
Bearer  bonds  in  denominations  of  £50,  £100,  £200,  £500,  £1,000  and  £5.000. 

19.  Victory  Bonds:— Original  issue  about  £360' million.  Offered  at  8s  June  12  to 
July  12,  1919.  Bonds  are  entitled  to  the  benefit  of  a  Sinking  Fund  of  2}i%  of 
the  nominal  amount  of  bonds  orginally  created.  See  item  34.  Tax  exempti9n8 
as  in  (18).  Receivable  at  100  on  same  basis  as  (18)  in  payment  of  death  duties. 
After  payment  of  interest,  the  balance  of  the  fund  is  apphed  to  the  redemption 
of  bonds  by  lot  on  Sept.  i  of  each  year.  See  item  34.  Tax  exemptions  as  in  (18). 
Receivable  at  100  on  same  basis  as  (18)  in  payment  of  death  duties.  Bearer 
and  registered  Bonds,  but  interest  in  all  cases  payable  by  means  of  Coupong 
attach^  to  bonds. 

20.  Exchequer  Bonds:— First  introduced  by  Mr.  Gladstone  in  1853.  At  present 
there  are  six  series  of  these  bonds  outstanding;  the  five  series  described  in  the 
table  and  the  new  series  described  on  page  33.  The  bonds  of  all  issues  are  pay- 
able to  bearer  and  are  in  denominations  of  £^0,  £100,  £200,  £500,  £1.000  ^d 
£5,000  except  there  are  no  £200  bonds  in  the  3%  issue  of  Jan.  28,  1930.    The  Ex- 


V 


214} 


m 


i». 


I  m 


|g|; 


BANKERS  TRUST  COMPANY 


23. 


24, 


chequer  Bonds  may  be  registered  either  as  inscribed  stock  or  registered  certificate. 

ih^cVkf'f^X  ']?'^?  ^^  '^^  ?^°i  ?^^^  ^'■^  receivable  in  payment  of  death  duties. 
Hilf  °^^^"  ^'"  ^^  ^^  received  in  payment  of  excess  profit  duties  and  muni- 
wi?  r!^^?"%PI'",^''^  ""^  ^^^^S^'?^  conditions  as  those  attached  to  the  National 
l^^f^Ji^tr.  T^^^^ldera  of  sH%  issue  due  1925  may  give  notice  during  tiie 
w^oo?  •'^°*  i^eitiier  of  the  years  1921.  1922  or  1923  requiring  repayment  of  the 
i^iM  ^in^J^^  "^•'^^  ^^^;  ^°  ^^^  y^''  '^^.^  suceeding  that  in  whiS  such  notice 
ArSl^     ^y^^^^  ^P'  arcumstances  may  notice  once  given  be  subsequentiy  with- 

t^b?^o  I^mnH^Jf' °o''^  ^^  ''^?^''  f'S^P^  ^^^  ^^^»  concerning  which  there  appears 
to  De  no  exemption,  same  as  item  (18). 

*'*  I^.t^J^Jii^^t^^i"^'*!  ^?"^  ^'^'  ^9^5.  a  scheme  was  put  into  operation  under 
hul^^^^^^""^  °/  England  was  prepared  to  receive  applications  daily  for  Tr^su^ 
biUs  to  mature  at  various  dates  up  to  twelve  montiis  after  date  of  issue,  but  the 
W  u'hw^nJ''""  "^^^  suspended  on  Jan  3.  1917.  On  March  30.  1917!  the^le  of 
Tuie  T^  rnr^^'^T  ^^^^^^d  ^^t  the  last  issue  under  this  system  was  made  on 
IfTJu'df^'^i'^J^^J^^^^^  J"°^  ^5.  1918,  while  on  June  18.  1917.  the  method 
wh^n  JoS^  ^^  ^^  '^^J^r?^  reverted  to.  and  was  continued  until  May  30.  19 19. 
^Itl^^^^^  T^^  suspended  for  some  weeks.    On  July  15.  1919,  biUs  were  again 

^^'  Fvlf  fcf^^'"?.  ?uTJir''V^^''~^H^  ^"""^  ""i  ^^^^  Certificates  was  commenced 
j«^^*^^/^'  ^^  ^^^  ^H°^  ^Ss  6d.  for  every  £1  certificate,  repayable  at  par  free  of 
income  tax  in  5  years  from  dates  of  issue.    See  also  page  25;    ^  "  *"  **''  *'*'''  '^^^  °' 

2l^?\^;^^'{^'^t^  LiABiLiTiES:--These  comprise  sundry  liabilities  under  the  Tele- 
S^tects  ^  ^^  ^''^'     ''^^'''  ^""'^  ''^^'  ^^"^^  ^*^'^  ^^^«'  and  several 

SS^JiJ-fn'SfnY'^"^''  States  GovERNjiENTr-The  British  Finance  Accounts  do 
not  give  details  in  regard  to  this  indebtedness.    The  report  of  the  Secretary  of 
Treasury  of  the  United  States  presented  to  Congress  on  Nov.  20   loiostatS  that 
the  total  advances  of  the  British  Government  to  Nov.  15.  19^^  Iggregatld  S?^^^^^ 
?^or^-  ^-^  ^^^^^'  ^^  ^^^  Secretary  of  the  Treasury  to  th^  ^nafe^dated  Mi^^^^ 

^IWt^'"^^^^  "^^^^""^  2^  I64.164.000.  The  accrued  unpaid  int^^t  to 
March  10  was  reported  to  be  I21 1.828.890.  "tcxcoi,   w 

^r^c^^^^^??-^'^-^.'T'^^!f  ^^"^  for  lsoo.000.000  offered  in  New  York.  Oct.  14 
K^JJn^Af  rl^!,^'^^  and  several  obligation  of  the  Governments  of  the  United 
Kingdom  of  Great  Bntain  and  Ireland .  and  the  French  Republic.  Principal  and  in- 
terest are  payable  in  New  York  City,  in  United  States  gold  coin  wShout^eductiiSi 
for  any  present  or  future  British  or  French  taxes.  Coupon  Bonds ^ndenomii^^^^ 
TZ^.iJr'"'  f500  and  $1  000  may  be  registered  as  to  princij^l    rIS^ 

Ponton  a«H'''''^-'l^^!??l°^i''.^^  ^J^'^^^*'  ^^^  ^50.000  and  authorizcd  multiplS^ 
Coupon  and  registered  bonds  interchangeable.     Convertible  at  the  option  of  the 

noJ  l/t^r^'fh't^'^f  ^  r^  ^^^^'  \^^  ^P"^  ^5'  ^92^  °^  (provided  that  notice  b^  given 
not  later  tlmn  April  I5.  1920)  at  maturity  par  for  par  into  14-25  year  joint  and 
several  4^%  bonds  of  the  Governments  of  the  United  Kingdom  of  Great  Britain 
and  Ireland  and  the  French  Republic.  Such  4^^%  bonds  will  be^paj^b^pri^^^ 
and  interest  in  United  States  gold  coin  in  New  York  City  free  frSm^edu?tiSn  for 
any  present  or  future  British  or  French  taxes.    They  will  matu?rOctTJiolo 

iWrZ^H^t/^^f  ™^t^^^  f^  P^;;^^^  ^^^^^^  interest  ^n  whX  or  in  ^'rt  on  X' 
interest  date  not  eariier  than  Oct.  15.  1930  upon  3  months  notice.       *^  *-  ""  ^^^ 

Secured  Dollar  NoTEsi—Part  of  an  original  issue  of  liso.ooo.ooo  made  in 
?.!T  ^^''i^  ^°''-  '•  '^'^  principal  and  interest  payable  in  New  York  in  United 
m^pnf  1?^!?/''.^''  ^^  ^^%  ''^^''  °f  ^^^  S°^^.^^  ^^  London  in  steriing  at  the  fixS 
rate  of  I4.865  to  the  pound.     Free  of  any  British  taxes  present  or  future.     R^eem- 

t^Af''''  ^""J^^^  °°^'^^  ^^°?J  N°^-  I'  1919  to  Oct.  31.  1920  at  102,  and  iSSSt 
^'^l^f^'V^''''-  ^»  ^^2^  ^°  ^^^'  31.  1921  at  loi  and  interest.  Secured  by  plldle 
with  the  Guaranty  Trust  Company  of  New  York  of  securities  approved  by  Me1«ra 

lu^t^^'i^V"  ^Th °*r  ^'^'''^  ^  ^.^'^^^  ^^\"\°^  ^°^-  °^^^  ^h^  par  value  of  thf  n^tes 
outstanding.     The  Government  may  sell  the  collateral  at  any  time  and  apply  the 

proceeds  of  sale  to  the  retirement  of  the  notes  by  purchase  or  redemption  by  lot! 


25. 


ENGLISH  PUBLIC  FINANCE 


[215 


27.  3- Year  Convertible  Notes: — Issued  in  New  York,  Oct.  23.  1919  at  98  and 
interest.  Offered  in  conjunction  with  10  year  convertible  bonds  (28)  1250,000,000 
in  all.  Denominations  lioo.  Isoo,  and  li.ooo.  Interest  and  principal  payable  in 
New  York  in  United  States  gold  coin,  without  deduction  for  any  British  taxes 
present  or  future.  Convertible  at  the  option  of  the  holder  at  par  and  interest  into 
National  War  5%  Bonds  fourth  series  fiy),  sterling  exchange  being  computed 
for  the  purpose  of  conversion  at  the  fixed  rate  of  I4.30  to  the  pound.  Conversion 
may  be  made  at  any  time  prior  to  Nov.  21, 1922,  notice  to  be  given  prior  to  Sept.  i , 
1922,  of  intention  to  convert.  The  converting  note  holder  will  be  entitled  to 
receive  £232  12s  principal  amount  of  such  National  War  Bonds  for  li.ooo  of 
principal  amount  notes  surrendered. 

28.  10- Year  Convertible  Gold  Bonds: — Offered  in  New  York  with  (27)  Oct.  23, 
19 19.  at  96 J^  and  interest.  Principal  and  interest  payable  in  New  York  in  United 
States  gold  coin,  free  of  any  British  taxes  present  or  future.  Coupon  bonds  in 
denominations  of  |ioo,  $500.  li.ooo.  registered  as  to  principal.  Convertible  at 
any  time  prior  to  Feb.  i,  1929.     For  terms  and  conditions  see  above,  No.  26. 

29.  20-Year  Gold  Bonds: — Issued  Feb.  i,  1919  in  exchange  for  2  year  secured  notes 
of  the  United  Kingdom  which  matured  on  that  date.  Principal  and  interest 
payable  in  New  York,  in  United  States  gold  coin  or  in  London  at  the  fixed  rate  of 
I4.86S,  free  of  British  taxes,  present  or  future.  Denominations,  coupon  bonds, 
lioo,  I500  and  |i,ooo,  principal  registerable.  Registered  bonds  li.ooo,  Is.ooo 
and  lio.ooo,  coupon  and  registered  bonds  interchangeable. 

30.  Other  Debt  Created  under  War  Loan  Act: — ^^ Other  debt  is  taken  to  include 
all  borrowings  outside  this  country,  with  the  exception  of  the  first  American 
Loan  raised  in  November,  1916,  under  the  American  Loan  Act".  [The  Anglo- 
French  ssl  (Economist,  Apr.  3,  1920).  In  the  table  the  amount  due  in  and  to  the 
United  States  has  been  segregated  with  the  possible  exception  of  around  £12  million 
due  for  Treasury  Bills  sold  in  New  York.  Of  the  sum  remaining  the  Monthly 
Review  for  March,  1920,  of  the  London  Joint  City  &  Midland  Bank  estimates  ap- 
proximately £150  million  to  be  due  to  other  foreign  countries — including  Argentina. 
Uruguay,  Japan  and  other  neutrals;  the  balance  probably  represents  amounts 
due  to  the  Dominions. 

31.  Grand  Total  of  Direct  Debt: — ^The  authority  for  this  total  and  for  some  of 
the  items  is  a  table  given  in  the  London  Economist,  Apr.  3,  1920,  page  730. 

32.  Guaranteed  Loans: — ^Any  liability  in  connection  with  these  loans  is  apparently 
remote  as  all  the  foreign  loans  are  a  charge  upon  certain  revenues  of  the  nations 
whose  bonds  are  guaranteed.  The  local  loans  are  secured  by  the  assets  of  the 
Local  Loan  Funds  which  are  supported  by  local  taxation.  The  Irish  Land  Pur- 
chase Bonds  are  secured  by  the  Irish  Land  Purchase  Funds. 

TRANSFER  REGULATIONS 

33.  Transfer  and  Other  Regulations: — ^The  Bank  of  England  and  the  Bank  of 
Ireland  act  as  fiscal  and  transfer  agents  for  the  British  Government  debt. 
Transfers; — Transfers  of  Government  securities  can  be  made  without  charge  from 
the  books  of  the  Bank  of  England  to  the  books  of  the  Bank  of  Ireland  or  vice  versa  . 
Transfer  days,  Monday  to  Friday,  inclusive,  free  of  charge;  Saturday  upon  the 
payment  of  a  fee  of  2s  6d. 

Stocks  (Registered  bonds,  American  parlance)  are  transferred  in  multiples  of  a 
penny  (a)  on  the  books  of  the  Bank,  in  which  case  the  owner  has  no  documen- 
tary evidence  of  ownership  (such  stock  is  known  as  inscribed  stock)  or  (b)  by 
deed,  in  which  case  the  owner  receives  a  certificate  by  the  Bank  of  England  in 
the  following  form:  "This  is  to  Certify  that  (blank)  is  the  registered  proprietor 
of  (blank  amount)  registered  (here  follows  the  title  of  the  Loan)'*.  Bearer  Cou- 
pon Bonds  are  obtainable  in  exchange  for  inscribed  stock  or  stock  transferred  by 
deed,  in  the  case  of  most  issues.  Registered  Coupon  Bonds  are  issued  in  the 
same  demoninations  as  Bearer  Bonds.  A  Certificate  of  ownership  similar  to  (b) 
above  is  issued  to  which  Coupons  for  interest  are  attached.  Each  Registered 
Coupon  Bond  is  transferable  by  deed  but  only  in  its  entire  amount. 


)ii: 


2l61 


BANKERS  TRUST  COMPANY 


iiii' 


\'      H 


Dividends: — Cheques  for  dividends  on  inscribed  and  registered  stocks  are  mailed 
to  the  owner. 

All  business  in  regard  to  transfers  must  be  conducted  at  the  Bank  of  England 
or  the  Bank  of  Ireland  in  person  or  through  a  banker  or  other  agent.  The  banks 
will  not  carry  out  any  of  these  operations  by  correspondence, 

SINKING  AND  DEPRECIATION  FUNDS 

34.  Sinking  Funds:— OW  Sinking  Fund  (38  and  39  Vict.)  consisting  of  the  surplus, 
if  any,  of  income  over  expenditure  for  any  year,  of  which  the  Treasury  in  the  course 
of  the  next  financial  year  shall  cause  to  be  issued  out  of  the  Consolidated  Fund, 
or  the  growing  produce  thereof,  at  such  times  during  that  year  as  they  may  from 
time  to  time  direct.  The  Old  Sinking  Fund  is  to  be  issued  to  the  National  Debt 
Commissioners  and  applied  by  them  in  the  same  manner  as  the  New  Sinking  Fund, 
except  that  it  may  be  employed  in  paying  off  advances  made  by  the  Bank  of  Eng- 
land or  the  Bank  of  Ireland  in  pursuance  of  Section  12  of  the  Exchequer  and  Audit- 
Act,  1866,  but  not  in  paying  off  any  loan  borrowed  under  any  Act  to  meet  way  a  and 
means. 

New  Sinking  Fund  (38  and  39  Vict.)  consisting  of  such  portion  of  the  permanent 
annual  charge  for  the  Natiorual  Debt  as  is  in  any  financial  year  not  required  for 
the  purpose  of  paying  the  annual  charges.  This  is  to  be  issued  from  time  to  time 
to  the  National  Debt  Commissioners  and  be  applied  by  them,  within  six  months 
after  the  date  of  issue  thereof,  in  purchasing,  redeeming,  or  paying  off  any  one  or 
more  of  the  following  descriptions  of  debt — ^namely.  Annuities  (perpetual  or  termin- 
able) charged  on  the  Consolidated  Fund,  and  Exchequer  Bonds  and  Exchequer 
Bills  (whether  held  by  the  public  or  on  account  of  the  Exchequer,  or  sent  into  the 
Bank  of  England  for  payment) ;  but  the  New  Sinking  Fund  is  not  to  be  applied 
in  paying  off  any  advances  made  by  the  Bank  of  England  or  the  Bank  of  Ireland 
in  pursuance  of  Section  12  of  the  Exchequer  and  Audit  Act,  1866,  or  in  paying  off 
any  loan  borrowed  under  any  Act  to  meet  ways  and  means.  (See  Application  of 
Sinking  Funds,  below). 

An  Annuity  of  £is,547  created  under  the  National  Debt  (Conversion  of  Stock) 
Act,  1884,  to  extinguish  the  increase  in  the  nominal  capital  amount  of  the  National 
Debt  due  to  conversion  of  3  per  cent.  Stock  into  2M  and  2^  per  cent,  stock,  and 
expiring  in  1934. 

Application  of  Sinking  Funds,  The  Finance  Act,  1915,  makes  Sections  3  and  4 
of  the  Sinking  Fund  Act,  187S  (which  relate  to  the  application  of  the  Old  and 
New  Sinking  Funds),  applicable  to  any  securities  issued  under  the  War  Loan  Act, 
1914.  or  any  Act  extending  or  amending  that  Act  or  any  other  enactment  authoriz- 
ing money  to  be  borrowed  for  the  purpose  of  the  present  war  in  like  manner  as 
they  apply  to  annuities  charged  on  the  Consolidated  Fund. 

Depreciation  Fund  for  4%  and  5%  War  Loans.  (Items  12  and  13.)  The  follow 
lowing  regulations  have  been  made  by  the  Treasury  respecting  the  Depreciation 
Fund  for  4  per  cent,  and  s  per  cent.  War  Loan.  Under  Section  32  of  the  Finance 
Act,  1917: — (i)  There  shall  be  established  a  fund  to  be  known  as  the  "Depreciation 
Fund, "  under  the  control  of  the  National  Debt  Commissioners.  (2)  The  following 
sums  shall  be  paid  to  the  fund  from  time  to  time  under  the  direction  of  the  Treas- 
ury: (a)  In  respect  of  the  six  months  from  17th  February,  1917,  to  i6th  August, 
191 7.  an  amount  equal  to  six-eights  of  i  per  cent,  of  the  total  nominal  value  of 
the  Stock  and  Bonds  of  the  4  per  cent.  War  Loan,  1929-1942  and  the  s  per  cent. 
War  Loan,  1929-1947.  originally  created;  (b)  in  respect  of  each  succeeding  month 
an  amount  equal  to  one-eighth  of  i  per  cent,  of  the  total  nominal  value  of  the 
said  Stock  and  Bonds;  provided  that  no  payment-  shall  be  made  to  the  fund  in 
respect  of  any  period  during  which  the  unexpended  balance  of  the  fund  amounts 
to  £10,000,000.  (3)  The  moneys  standing  to  the  credit  of  the  Depreciation  Fund 
shall  be  applied  from  time  to  time  by  the  National  Debt  Commissioners  in  the 
purchase  of  Stock  or  Bonds  of  4  per  cent.  War  Loan,  1929-1942,  or  s  per  cent. 
War  Loan,  1929-1947.  whenever  the  market  price  of  the  Stock  and  Bonds  of  these 
issues  is  below  the  respective  issue  prices — ^viz.,  £100  and  £95.  (4)  The  Stock  and 
Bonds  bought  on  behalf  of  the  Depreciation  Fund  shall  be  cancdfled  in  the  same 
manner  as  Stock  or  Bonds  bought  for  the  Old  and  New  Sinking  Funds.     (5)  The 


ENGLISH  PUBLIC  FINANCE 


[217 


National  Debt  Commissioners  shall,  out  of  moneys  standing  to  the  credit  of  the 
Depreciation  Fund,  purchase  for  that  fund  any  Stock  or  Bonds  of  the  4  Per  cent.- 
War  Loan,  1929-1942,  or  the  5  per  cent.  War  Loan,  1929-1947.  purchased  out  ot 
funds  standing  to  the  credit  of  any  Government  Account  between  the  17th  i^ebru- 
ary,  191 7,  and  the  passing  of  the  Finance  Act,  1917,  in  anticipation  of  the  establish- 
ment of  the  Decpreciation  Fund.  (6)  Any  sums  standing  to  the  credit  of  the  lund. 
and  not  required  for  the  immediate  purchase  of  such  Stock  or  Bonds  as  aforesaid, 
may  be  invested  by  the  National  Debt  Commissioners  in  Treasury  Bills,  or  in 
advances  to  the  Treasury  of  sums  which  the  Treasury  may  borrow  for  the  Purpose 
of  raising  any  sum  which  they  are  authorized  to  issue  out  of  the  Consolidated 
Fund  under  any  Consolidated  Fund  Act  or  Appropriation  Act.  (Up  to  the  15th 
March,  1919,  the  amount  issued  out  of  the  Exchequer  for  the  Depreaation  I^und 
was  £62,180,513.) 

Sinking  Fund  for  4%  Funding  Loan  and  Victory  Bonds.  (Items  18  and  19).  His 
Majesty's  Government  undertake  to  set  aside  at  the  close  of  each  half-year  a  sum 
equal  to  2^  per  cent,  on  the  nominal  amount  of  the  Loan  and  Bonds  originally 
created.  After  deducting  therefrom  the  amount  required  for  payment  of  interest 
on  the  Loan  for  the  half  year,  the  balance  of  the  sum  so  set  aside  will  be  carried  to 
a  Sinking  Fund  which  will  be  applied  as  follows: 

In  the  case  of  the  Funding  Loan;  during  the  succeeding  half-year  to  the  purchase 
of  the  Loan  for  cancellation  if  the  price  is  at  or  under  par;  when  the  price  is  above 
par  it  will  be  either  so  applied  or  otherwise  invested  under  the  control  of  His 
Majesty's  Treasury.  Any  outstanding  balance  of  the  Loan  not  previously 
redeemed  will  be  repaid  at  par  on  May  i,  1990,  but  His  Majesty's  Government 
reserve  to  themselves  the  right,  on  giving  three  calendar  months  notice  m  the 
London  Gazette,  to  redeem  at  par  at  any  time  on  or  after  May  i,  any  outstand- 
ing balance  of  the  Loan  not  previously  purchased  and  cancelled  by  the  operation 
of  the  Sinking  Fund. 

In  the  case  of  the  Victory  Bonds;  by  annual  drawings  to  the  redemption  of  the 
Bonds  at  par  (including  Bonds  which  have  been  surrendered  to  the  Commissioners 
of  Inland  Revenue  for  death  duties  as  hereinafter  provided),  the  Bonds  to  be 
redeemed  in  each  year  determined  by  lot  and  paid  off  on  September  i  in  such 
year  in  accordance  with  regulations  made  by  the  Treasury.  The  numbers  of  the 
Bonds  drawn  for  redemption  on  each  occasion  will  be  advertised  in  the  London 
Gazette  not  less  than  two  months  prior  to  the  date  of  redemption.  Interest  on 
Bonds  drawn  for  repayment  will  cease  from  the  date  on  which  the  Bonds  become 
repayable.  The  first  drawing  will  be  that  for  the  Bonds  to  be  redeemed  on 
September  i,  1920. 

AUTHORITIES 

The  sources  from  which  the  above  tables  and  notes  have  been  compiled  are  Finance 
Accounts  for  19 19,  the  Stock  Exchange  (London)  Daily  Official  List,  official  cir- 
culars so  far  as  obtainable,  the  Stock  Exchange  Oficial  Intelligence,  vol.  38 — for 
1920.     The  Economist  and  The  Bankers  Magazine  (London). 


2i8l 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[219 


QUOTATIONS 

Consols  and  Bank  of  England  Stock 

1697-1919 


QUOTATIONS— Con/znt^^i 
Consols  and  Bank  of  England  Stock 

1697-1919 

For  dosing  years  of  historical  periods  and  yearly  from  1X57. 


f\Jk^   fXlt,\X    Jr\: 

;<xiijr   11^^111 

iO^/. 

—  1 

Consols 

Bank  of 

England 

Consols 

Bank  of 

'  England    1 

Year 

Price 

Average  (k)  Yield 

Pri 

Year 

1 

ice 

Xr 

11V.C 

Average  yjn)  Yieia 

Pnce              H 

High 

Month 

Low 

Month 

Price 

% 

High 

Low 

High 

Month 

Low 

Month 

Price 

% 

High 

Low        1 

rt  *-.^ 

97H 

97^ 

July 
Nov. 

93H 
93 

Dec. 
May 

260 
267 

248 
25s 

1697 

(a)    97 

79 

(e)    88.0 

5.7 

(1)    98 

51H    1 

1876 
1877 

95.0 
95. 4 

3.2 
3.1 

1701 

(a)    79 

57 

(e)    68.0 

7.3 

(1)  123 

103H     1 

1878 

98 

June 

93% 

Oct. 

95.2 

3.1 

263 

249 

1714 

(a)    935i 

7SH 

(e)    86.2 

5.8 

(m)i335^ 

116H     ■ 

1879 

99^ 

April 

9A% 

Jan. 

97.5 

3.1 

271 

249 

1739 

(b)  los 

Jan. 

97 

Nov. 

(f)  101.9 

3.3 

(n)  144 

134        ■ 

1880 

100^ 

Nov. 

97  H 

Sept. 

98.4 

3.0 

280 

269 

1749 

102 

Oct. 

91 

Feb. 

97.6 

3.1 

140 

H 

1881 

103 

May 

9SH 

Jan. 

100. 0 

3.0 

299 

278 

1755 

lOI 

Jan. 

90 

Oct. 

94-5 

3.2 

131 

H 

1882 

I02>^ 

May 

99 

Jan. 

100.5 

3.0 

291 

284 

1766 

90 

Jan. 

87 

Feb. 

88.5 

3.4 

140 

134     H 

1883 

102^ 

Feb. 

99H 

July 

101.4 

2.9 

302 

288 

1775 

90 

Jan. 

87 

July 

89.6 

3.3 

146 

140      H 

1884 

102^ 

Apr. 

9SVs 

Dec. 

lOI.O 

2.9 

312 

294 

1785 

71 

Dec. 

55 

Feb. 

59.7 

5.0 

130 

112      H 

188s 

lOlH 

May 

9A% 

Apr. 

99.3 

30 

309 

289^ 

1792 

(c)    96 

Mar. 

76 

Dec. 

(g)    90.0 

(g)3.3 

216 

175      H 

1886 

102^ 

Nov. 

99^ 

Jan. 

100.8 

3.0 

299 

291 

1802 

76 

Apr. 

68 

Jan. 

70.9 

4.2 

195 

180      ■ 

1887 

103^ 

May 

99  Ji 

Feb. 

101.8 

2.9 

308H 

294 

1817 

84M 

Dec 

62 

Jan. 

75.3 

4.0 

(0)  294 

220      1 

1888 

IO3H 

Mar. 

98H 

Dec. 

lOI.O 

2.9 

332 

303 

1833 

9IM 

June 

84^ 

Jan. 

(h)    87.7 

3.4 

2I3>^ 

190      1 

1889 

99M 

Jan. 

96H 

Sept. 

98.0 

2.8 

346 

320 

1842 

97  Jl 

Dec. 

88>^ 

Jan. 

(i)    92.0 

3.3 

173 

165      H 

1890 

9m 

May 

93^ 

Nov, 

96.3 

2.8 

ZAO% 

327 

1847 

93^ 

Jan. 

7SH 

Oct. 

87.2 

3.4 

206H 

180      1 

1891 

97H 

Jan. 

94% 

June 

95.7 

2.9 

343 

323 

1854 

9SH 

Sept. 

8SH 

Mar. 

(J)    91.9 

3.3 

221 

204H   1 

.1892 

96^ 

Dec 

93^ 

Jan. 

96.7 

2.8 

344 

32s 

1857 

94H 

Jan. 

8614 

Oct. 

91.9 

3.3 

222 

209      1 

1893 

9SH 

June 

9S% 

Sept. 

98. 5 

2.8 

344 

327 

1858 

98K 

Oct. 

94^ 

Jan. 

96.9 

3.1 

230 

217      1 

1894 

102H 

Dec. 

97^ 

Jan. 

lOI.I 

2.7 

(s)  343 

325 

1859 

97^ 

Dec. 

SSH 

Apr. 

95.1 

3.1 

231 

215      1 

1895 

108H 

Sept. 

103H 

Jan. 

106.2 

2.6 

338H 

322 

i860 

95  K 

Jan. 

92H 

Oct. 

94.0 

3.2 

235>^ 

225      1 

1896 

II3H 

July 

105H 

Jan. 

no. 7 

2.5 

336 

322 

1861 

94M 

Nov. 

89H 

July 

91.5 

3.3 

241 

226H    1 

1897 

113^ 

May 

iio^i 

Mar. 

112. 4 

2.4 

328 

325 

1862 

9AH 

July 

9iyB 

Jan. 

93.0 

3.2 

(p)244 

232  H    ■ 

1898 

113^ 

Jan. 

106  5i 

Oct. 

no. 9 

2.5 

351M1 

326 

1863 

94 

May 

90 

Dec. 

92.6 

3.2 

240 

232      H 

1899 

lllH 

Jan. 

975i 

Dec. 

106.9 

2.6 

(r)  361 H 

325 

1864 

92 

May 

87H 

Sept. 

90.1 

3.3 

244 

234      H 

1900 

103^ 

June 

965^ 

Dec 

99.6 

2.7 

349 

326 

186s 

9iy2 

June 

86M 

Dec. 

89.5 

3.3 

250 

238^    ■ 

X901 

97  Ji 

Feb. 

91 

July 

94.2 

2.9 

342 

320 

1866 

90H 

Dec. 

84^ 

May 

88.0 

3.4 

253 

240      H 

1902 

97^ 

June 

92H 

Dec 

94.4 

2.9 

Z2(>% 

323^ 

1867 

96H 

June 

89K 

Apr. 

93.0 

3.2 

264 

239      H 

1903 

93^Vr6 

Apr. 

86^ 

Apr. 

90.7 

2.7 

33l>4 

311 

1868 

96H 

May 

91^ 

Jan. 

93.9 

3.2 

251 

240      I 

1904 

(d)    91 H 

June 

85 

Mar. 

88.2 

2.8 

316 

295^ 

1869 

94M 

June 

91M 

May 

92.9 

3.3 

246 

235      1 

1905 

9i^tr« 

Mar. 

87^ 

Jan. 

89.8 

2.8 

308 

29l>^ 

1870 

94^ 

May 

88H 

Aug. 

92.5 

3.3 

■ 

1906 

9i>i 

Apr. 

85^6 

Oct 

88.3 

2.8 

301 

268 

1871 

94 

July 

91^ 

Dec. 

92.7 

3.3 

1 

1907 

87».l6 

Feb. 

80^ 

Aug. 

84.1 

2.9 

288>^ 

255 

1872 

93H 

May 

9i>^ 

Dec. 

92. 5 

3.3 

1 

1908 

SSH 

Mar. 

835.6 

Dec. 

86.1 

2.9 

(t)  285 

258)^ 

1873 

94 

May 

91M 

Dec. 

92.5 

3.3 

H 

1909 

86 

Apr. 

82Vii 

Oct. 

84.0 

3.0 

279 

256 

1874 

93^ 
95H 

May 
Nov. 

91H 
91% 

Dec. 
Jan. 

92.5 
93-7 

3.3 
3.2 

(r)  261 
262 

'sf    1 

1910 

83^ 

Jan. 

78^^ 

Dec. 

81.0 

3.1 

272 

250 

187s 

* 


' 


220] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[  221 


QUOTATIONS— Continued 
Consols  and  Bank  of  England  Stock 

1697-1919 

For  closing  years  of  historical  periods  and  yearly  from  1857. 


Consols 

Bank  of  England 

Year 

Price 

Average  (k)  Yield 

Price 

High 

Month 

Low 

Month 

Price 

% 

High 

Low 

191 1 

S2% 

April 

76% 

Sept. 

(i)     79.3 

3.1 

263M 

242H 

1912 

79l^ 

Feb. 

72H 

Oct. 

76.1 

3.3 

251 

234 

1913 

75^ 

Mar. 

71 

Dec. 

73".^ 

3.4 

251 

224H 

1914 

77"/l6 

Feb. 

69^ 

July 

74"^ 

3.3 

256 

234 

1915 

685^ 

Jan. 

57 

Nov. 

65.5 

4.1 

249^ 

230 

1916 

615^ 

June 

535^ 

Dec. 

58.0 

5.2 

230^ 

194H 

1917 

S6Vs 

Oct. 

51 

Feb. 

(e)    54.0 

4.6 

205 

190 

1918 

63H 

Oct. 

53^ 

Mar. 

58.2 

4.3 

226 

I9ili 

1919 

60 

Jan. 

49^^ 

Sept. 

55.0 

4.5 

(U)  224^^ 

186^ 

(a)  These  quotations  are  not  for  Government  Stock  but  for  the  stock  of  the  Million 
Bank,"  an  investment  trust  whose  funds  were  invested  in  Government  stocks. 
The  quotations  probably  give  a  better  idea  of  the  true  market  than  would  quota- 
tations  for  Government  annuities.  The  first  quotation  is  for  1700  the  firat  year 
in  which  the  Million  Bank  stock  was  quoted.  The  dividends  paid  by  the  Million 
Bank  in  these  years  were  at  the  rate  of  5%.    Scott.  W.  R..  Vol.  II.  See  Authorities. 

(b)  (1739-1785)  Rogers,  J.  E.  T.  "History  ot  Agriculture  and  Prices    Vol.  VII.,  Part  II . 

(c)  (1792-1903)  Mabson— "The  Statist's  History  of  the  Public  Debt." 

(d)  (1904-1919)  Investors'  Monthly  Manual. 

(e)  Average  of  high  and  low  only.  ,       _  ,   ,^   «*   ..tt- ^  * 

(f)  (1 739- 1 785)  Average  of  daily  prices  as  recorded  in  Rogers.  J.  E.  T.     History  ot 
AgricultureandPrices"Vol.  VIL,  PartlL      ^,    ^.  ^      ^,  .  c;ik».««« 
(1792-1817)   Average  of  the  mean  of  the  monthly  high  and  low  prices.     SilDerling, 
N.  J.  in  Harvard  Review  of  Economic  Statistics,  Oct.  1919. 
Van  Sommers,  James.     Tables,  London,  1848.        .,,,.,        ^  ^,1 
(i842-i847)(i9ii-i9i6)  Statistical  Abstract  for  United  Kingdom  Average  monthly 


(S) 
(i) 


0)    (1854-1910)  Average  and  yield.    Williams,  T.  T.  "Journal  of  Royal  StaUstical 

Societv  "  ]March   191 2 
(k)   Except  where  otherwise  noted  the  yield  is  obtained  by  dividing  the  average  yearly 

price  into  the  rate  of  interest.    This  rate  was  3%  from  1739  to  Apnl  5.  1889.  then 

2li%  to  April  6,  1903  and  since  then  2H%. 
(1)     (1697-1701)  Scott.  W.  R.,  Vol.  IL     See  Authorities.  «  ^  tt 

(m)  (17 14)  Rogers.  J.  E.  T.  "History  of  Agriculture  and  Prices"  Vol.  VIL.  Part  II. 
(n)    (1739-1802)  Sinclair  Vol.  II.     See  Authorities.  .,..,«,.  j 

(o)    (1817-1861)  Francis.    John— History    of    Bank    of    England— "Its    Times   and 

(p)    (1862-1869)  Thom's  Irish  Almanac  and  Official  Directors'  of  the  United  Kingdom 

of  Great  Britain  and  Ireland, 
(r)    (1874-1893)  (i 899-1907)  Investors*  Monthly  Manual, 
(s)    (1894-1898)  Stock  Exchange  Official  Intelligence, 
(t)    (1908-1918)  Mathieson's  Hand- Book  for  Investors,  1919. 

(u)    (19 19)  Investors'  Monthly  Manual.         .  

(v)  High  and  low  prices.  The  months  given  for  the  high  and  low  pnces  of  the  year  arc 
those  in  which  the  price  first  or  urred.  In  some  years  these  same  pncci  wcr* 
reached  several  times. 


QUOTATIONS 

LONDON  STOCK  EXCHANGE 

British  Funds 


Calendar  Years 

H 
L 
H 
L 
H 
L 

H 
L 

H 
L 

H 
L 
H 
L 

H 
L 
H 
L 

H 
L 
H 
L 
H 
L 
H 
L 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

Name 
2'A%    (Goschen)    1923 

Money.      (Int.  Jan., 

Apr.,  July,  Oct.)    .    . 
2K%  (Childers).    (Int. 

Jan.,  Apr..  Jul..  Oct.) 
23^%  Money  (Int.  Jan., 

Apr..  July.  Oct.)   .    . 
3H%   War  Loan,  red. 

1925-28.    (Int.  Mar., 

Sept.) 

4K%   War  Loan,  red. 

1925-45-     (Int.  June, 

Dec.) 

5%  War  Loan,  red. 

1929-47.     (Int.    Jun. 

Dec.) 

4%  War  Loan,  red.  1929- 

42.   (Int.  Apr..  Oct.) . 
4%  Funding  Loan 

1960-90.     (Int.  May, 

Nov.) 

4%  Victory  Bonds 

(Mar.,  Sept.)      .   .    . 

National  War  Bonds 

First  Series 
5%   (Apr..  Oct.).  Oct., 

83X 

78^ 

87 
813^ 

76  H 

S2% 
76^ 
89 

803^ 
74H 

79% 
72K 
82M 
73K 
76M 
70M 

7S% 

71 

78K 

74K 

73M 

67% 

77% 
69K 
80K 
74% 
74  M 
67M 

68K 

57 

76K 

59K 

65M 

54 

9SK 
89K 

99^»/l'6 
96X 

61K 

s6K 

62K 

533^ 
59^ 
SO 

90K 
83 

97  ^^/fe 
92K 

66^ 

50K 
56Vr6 
53K 
533^ 
48 

87^ 
83*/l6 

lOI^ 

89K 

96K 
92K 

63K 

S3K 

6IK 

53^ 
S9H 

SoH 

89X 
85 

ioi}4 

98K 
96M 

92^ 
103^ 

99  J^ 

60 
49  Ji 
60K 

SoH 

56  H 
46H 

89K 

S4H 

ioo}4 

83  K 

96% 

89^»/r6 

103 

•   •   •   •   • 

98% 

t 

***** 

78K 

74 

ssH 

79  H 

lOI 

...*.< 

97 

1922 

5%   (Apr..  Oct.).  Oct.. 

lOiX 

96H 

1924 

5%   (Apr..  Oct.).  Oct., 

looK 

9SH 

1927 

4%   (Apr..  Oct.),  Oct. 

looK 

97H 

1927 

1 

r 


222] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[223 


w. 


QUOTATIONS  LONDON  STOCK  EXCHANGE  (Continued) 

British  Funds 


Calendar  Years 

1910 

1911 

1912 

1913 

1914 

191S 

1916 

1917 

1918 

I9I9 

Name 

Second  Series 

5%   (Apr.,  Oct.),  Apr., 

H 
L 
H 
L 
H 
L 
H 
L 

H 
L 
H 
L 
H 
L 
H 
L 

H 
L 
H 
L 
H 
L 

H 
L 
H 
L 
H 
L 
H 
L 
H 
L 
H 
L 

100^ 

96 

1023 

S%  (Apr.,  Oct.),  Apr., 

•    •   ■   •   • 

96K 

100  5^ 

I02S 

S%  (Apr.,  Oct.).  Apr., 

1028 

9SK 

4%   (Apr.,  Oct.),  Apr., 

100^ 
97K 

1028 

Third  Series 
S%  (Mar.,  Sept.), Sept., 

y  1  /^^ 
100  J^ 

1023 

9SJ^ 
100^ 

5%  (Mar.,  Sept.),  Sept., 

.• 

1025 

96  M 

S%  (Mar.,  Sept.),  Sept., 

looK 

1028 

95^ 

4%  (Mar.,  Sept.),  Sept., 

•  •  •  •  • 

100% 

1028 

97H 

Fourth  Series 
s%  (Feb..  Auk.).  Feb., 

lOOl^ 

1024. 

9SM 

S%  (Feb..  Aus.).  Feb., 

100^ 

1020 

97^ 

4%  (Feb..  Auk.).  Feb., 

lOOl^ 

1020 

97 

Exchequer  Bonds 
3%  Jan.,  1930.      (Int. 
Jan..  Apr.,  Jul..  Oct.) 

83 
79"/f6 

83 

8l»V6 
looH 

99 

lOOj^ 

99  5i 
lOI 

99^ 

I02j^ 
100^ 

S3l4 

70M 

3%    Jan..    1030.     (Int. 

1  y/* 
83 

Jan..  July)  ..... 

•   •  •   •   • 

78 

s%  Dec.  1020.    (June. 

1  ** 

loiV^ 

Dec.) 

08 

S%  Oct.,   192 1.      (Int. 

100  J^ 

Apr.,  Oct.)      .... 

97Vii 

S%  1919-22,  Apr.,  1022. 

ioo5^ 

(Apr..  Oct.)    .... 

96 

6%  Feb.,  1920.   (Feb., 
Aufi:.) 

loiH 

■ 

ooH 

, 

^vrvr^O 

QUOTATIONS  LONDON  STOCK  EXCHANGE  (Continued) 

British  Funds 


Calendar  Years 
Name 


3^%  Guaranteed,  I933 

(issued    under    Irish 

Land  Act).  (Int. Jan., 

July) 

2K%  Guaranteed  192 1 

(Int.,  Jan.,  July)    .    . 
3%  Guaranteed,  red.,  2 

Dec,  1939.  (Int. Jan., 

July) 

3%  Local  Loans,  1912. 

(Int.  Jan.,  Apr.,  July, 

Oct.) 

3%  Met.  Police  Deb., 

1920.  (Int.  Jan. .July) 
3%  Egyptian  Gua.  (Int. 

Mar.,  Sept.)    195 1    • 
2^2%  Greek  Gua.  Loans 

(Int.  Apr..  Oct.)  1898 
3%  Mauritius,  1940. 

(Int.  Jan.,  July)     . 
SK%  Sudan  Govt.  Gtd. 

Bds.  (Int.  May,  Nov.) 
3%  Transvaal  Gua. 

1923-S3  Money.  (Int. 

May,  Nov.) 

3%  Transvaal  Gua.  red. 

I    July,    1958.    Int. 

Jan.,  July) 

4%  Turkish  Gua.   (Int. 

Feb.,  Aug.)  18SS    .    • 
Bank  of  England  .   .   . 

Div.  %,  Apr.  S  .   .    . 

Div.  %,  Oct.  5  .   .   . 

Bank  of  Ireland.   .   .   . 

Div.  %,  Feb.  i  .   .   . 
Div.  %,  Aug.  I  .   .    . 


H 
L 

H 
L 

H 
L 

H 
L 
H 
L 
H 
L 
H 
L 
H 
L 
H 
L 

H 
L 

H 
L 
H 
L 
H 
L 


H 
L 


1910 


1911 


84M 
79"/i« 

84 
79K 

92 
88 

96H 

92)^ 

93 

91K 

995^ 
5. 


84K 
76^ 

83^6 
76H 

92^ 
83^ 

94K 


1912 


^8 

8SH 
I. 


^4 
94 
91K 


73 

79^ 

74H 

86K 

|3. 


I9I3 


I9I4 


94H 

93"/(« 
97  K 
92K 
84K 
82 

91^ 
89K 


90X 
82 

94M 
92^ 

9SH 
88 

84 
79M 
87M 
87^ 


95K 
91K 

94"/i6 
91K 
106K 
102K 
272 
250 

9 

9 
314K 
293 

12 


96  K 


9S"/l6 

91K 

io6^^ 

102  K 

263 

242M 

9 

9 

303 

269 

12 

12 


93^^ 

92K 

88K 
104K 
lOlK 

251 

234 

9 

9 

28o>^ 

240 

II 

10 


76'/l6 
69^ 

76K 

70!^6 

82K 
7SM 

87K 

8i^i6 

96 

92K 

90K 

88 

87^ 
87^ 


79^ 
69 


1915 


1916 


''4 
72j^ 


91 K 
86^ 


74 

89K 
81^ 
97 
95 

9SK 

89  K 
80^ 

78 

92^ 
92^ 


95 
88^4 


67K 
65M 

68M 
66K 

74X 
71M 

8i>< 

78K 

94M 

89 

90 

87K 
75K 
75 


1917 


65^ 
50X 

6oi»/l6 
3. 


91 

94M 

86X 

87K 

102K 

I03K 

99K 

lOlK 

251 

256 

224K 

234 

9 

10 

9 

10 

243 

240K 

215 

222M 

10 

10 

10 

xo 

90 

88 

9oy 

86 


71K 
54^/^6 

78^ 
57K 

9IK 

72K 

68 

75V16 

65 

73 

71 


1918 


56 
51 

71 
55 

61^ 
55 

61X 
56K 
93X 
90> 

69M 
66K 
75K 
66K 


249K 
230 

10 

10 
230^ 

182K 
10 
10 


88K 
62K 

86 
63 
97 
75 
230K 

I94>^ 
10 
10 

200K 
172 

10 

10 


68 
63K 

66 

63 

79K 

72 
205 
190 

10 

10 

195 
170 

10 

10 


63 

(>zy2 

563^ 


67 


1919 


66^ 
58M 
97^ 

94 
72^ 
66^ 
80 

74 
71 
69^ 


70K 
67  H 

70 
63M 
83^ 
71 
226 

191K 

10 

10 
223 
190 

10 

10 


583^ 
SiH 

63 

53K 

64 
S4K 

645^ 

S5K 
99K 
98H 

nz% 
61 


8 
79 

69K 
64K 

74^ 
70)i 

73H 
62 

70 
62 

87K 

74 
224^ 
186^ 

10 

10 
226 
204 

12 

12 


1 


iri 


224] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[225 


f 


QUOTATIONS  LONDON  STOCK  EXCHANGE  (Continued) 

British  Funds 


Calendar  Years 
Name 


3K%  India,  1931 
Money.      (Int.  Jan., 
Apr.,  July,  Oct.)    . 

3%  India,  1948  Money. 
(Int.  Jan.,  Apr.,  June, 
Oct.) 

2^%  India,  1926 
Money.      (Int.   Jan.. 
Apr.,  July,  Oct.)    . 

3M%  India  Bonds. 
1916-18.     (Int.  Apr., 
Oct.) 

3K%  Indian  Rupee 
Paper.  (Int.  various 
dates) 

3H%  Indian  Rupee 
Paper,  1854-5.  (Int. 
June,  Dec.) 

3%  Indian  Rupee  Paper 
1896-7.  (Int.  June, 
Dec.) 

3K%  Isle  of  Man.  (Int. 
Feb.,  Aug.) 

3%  Isle  of  Man  Deb.. 
19 19-29.  (Int.  Feb., 
Aug.) 


H 
L 

H 
L 


1910 


94^ 
92^ 

84K 
79K 


1911 


H 

JoVs 

L 

66 

H 

L 

H 

63K 

L 

621^ 

H 

64 

L 

62^ 

H 

53 

L 

52 

H 

96^ 

L 

96^ 

H 

88^ 

L 

88^ 

97H 
91 

84^ 
78 

71 

65H 

lOlK 
99^»/i6 

64^ 


64^ 
633^ 

S2K 
52 

97«/l6 
97K 

87K 
85K 


1912 


94^ 
89K 

80K 

76^ 

67K 
63K 

I00"/l6 
99K 


■^8 
63H 

64^ 


S4J4 

96K 
96M 


I9I3 


I9I4 


91^ 

S4% 

78X 
71 

65 
60X 

lOOH 

98K 

64 


64>< 
63 

54 
53^ 
94 
94 


93K 
84 

80K 
71^ 

66K 
59 


8x 


=^8 
63K 

64"^6 
63X 

S3K 
53K 
99 


191S 


1916 


SsVs 
SoH 

69X 
60  J^ 

57 

lOoV^ 
96 

61% 
54 

62K 
52 

49K 
48K 
99f< 
96 


80^ 
63M 

69^ 
54K 

57^ 
46H 

91^% 


54K 
48  Ji 

55 

48K 

ASH 

43K 
96% 
89 


I9I7 


I9I8 


69  >i 
62X 

74 
61K 

6o>< 
S3K 

64 
53 

SO 

45K 

53  J^ 
44% 

98K 
96^ 

99K 
99X 

S3 

42M 

S3K 
43 

52K 

42% 

54 
43 

38M 

99*/l6 
89K 

41K 
41K 
99»/i6 
97K 

80K 
80 

79X 
77K 

I9I9 


715^ 

60 

6iJ^ 
50^ 

51^ 
43K 


68 

48K 

68K 
48K 

58 
43 
99K 
97 


Authorities  for  Quotations  1910-1919,  Investor's  Monthly  Manual — London.  Stock 
Exchanges  London  and  Provincial  Ten-Year  Record  of  Prices  and  Dividends — 1909- 19 18. 
Mathieson,  Fred  C.  C.  &  Sons,  London,  1919.     Mathieson's  Handbook  for  Investors  for  1920. 


QUOTATIONS  NEW  YORK  STOCK  EXCHANGE 

British  Funds 


Calendar  Years 
Name 

5%  Anglo-French 

syr 

(Int.  Apr.  &  Oct. 

United    Kingdom    of 

Great  Britain  and 

Ireland 

2  yr.  5%  Notes  1918. 
(Int.  Mch.  &  Sept.) 

3  yr.  5H%  Notes 

1919 

(Int.  May  &  Nov.) 

syr,  5H%  Notes 

1921 

(Int.  May  &  Nov.) 
S%%  Convertible 

Notes 

1918 

5H%  Convertible 

Notes  1919      .    .    • 

(Int.  Feb.  &  Aug.) 
SH7o  20  yr.  C^ld 

Bond  1937  ... 

(Int.  Feb.  &  Aug.) 
10  jrr.  Conv.  sJ^s 

1929 

(Int.  Feb.  &  Aug.) 

3  yr.  Conv.  sJ^s 

1922 

(Int.  Feb.  &  Aug.) 


H 
L 


H 
L 

H 
L 

H 
L 

H 
L 

H 
L 

H 
L 

H 
L 

H 
L 


1914 


191S 


98Ji 
93H 


1916 


96H 
92>^ 


99IVI6 
98 


y4 
91% 

9^ 
97 


1917 


933^ 
Si% 


9m 

9SH 

9W 
93H 

9m 
8434 

100^ 
98 

lOlH 
9SH 


I9I8 


9l}i 


I9I9 


100 

95H 

99^ 
91% 


9ll4 
95H 


105 
97^ 

loiH 
100  J^ 


99^ 
94^ 


lOI^ 

86H 

96H 
945^ 

98H 
95^ 


{t 

it . 


"  f 


226] 


BANKERS  TRUST  COMPANY 


MONEY  RATES 
London  Daily  Average 

Bank  Rate 


1914 

1915 

1916 

1917 

1918 

1919 

First  half    .... 
Second  half    .    .    . 

£    s     d 

3  4    7 

4  16  10 

£    s     d 
500 
500 

£    s     d 
500 
5  18     6 

£    s     d 
560 
500 

£    s     d 
500 
500 

£    s    d 
500 
560 

Whole  year.    .    .    . 

409 

500 

5     9     3 

5     3     0 

500 

530 

Market  Rate— Three  Months*  Bills 


First  half    .... 
Second  half    .   .    . 

£    s     d 

2  10    2 

3  5     3 

£    8     d 
290 

4  19     3 

£    s     d 

4  17     6 

5  II     0 

£    s     d 
4     16  7 

4  15     9 

£    s    d 
3  13     0 

3  10     5 

£    s     d 

3  10     0 

4  7     9 

Whole  year.    .    .    . 

2   17     8 

3  14     I 

5     4     3 

4  16     2 

3  II     9 

3  18  10 

Deposit  Rate— Banks 


First  half    .... 
Second  half.  .    .    . 

£    s    d 

1  14    7 

2  10    0 

£    s    d 
200 

3     4     I 

£    s    d 
3  10    0 

3  18    9 

£    s     d 
400 
400 

£    s    d 
320 
300 

£    s     d 
300 

3     7    9 

Whole  year.    .    .    . 

224 

2  12     0 

3  14     4 

400 

3     I     3 

3     3  10 

Short  Loans 


First  half    . 
Second  half . 

Whole  year. 


£ 

2 
2 


s     d 

2     7 

5  II 


4     3 


£    s     d 
I  12  II 

4     3     9 


2  18     4 


£    s    d 

4    5  II 
4  19     6 

4  12     8 


£    s 

4  II 

4     5 


d 
o 
6 


483 


£ 

3 
3 


s     d 
6     2 

4  II 


356 


£    s  d 

3     4  7 

3  14  7 

3     9  7 


TREASURY  BILLS 

Discount  Rate 


Date 


1917 
June  19 
Dec.  27 

1918 
Feb.  14 

1919 
May  31 
July   14 

Oct.     6 
Nov.    7 


Maturity 


3  and  6  months  bills 

u  u  u 


f« 


ii 


11 


Sales  discontinued 

2  months  bills — (Sales  discontinued  August  i  s) 

6      «  « 


3 
6 


3  and  6  months  bills. 


For  further  data  about  Treasury  Bills,  see  Item  21,  page  214,  also  Index. 


ENGLISH  PUBLIC  FINANCE 


[227 


SOVEREIGNS  OF  ENGLAND 
From  the  Conquest 


Reign      Reigned, 

Reign 

Reigned 

Sovereign                   began 

years 

Sovereign 

began 

years 

Norman  Linb 

Mary  I 

1553 

5 

William  the  Conquerer    1066 

21 

Elizabeth 

1558 

44 

WlUiam  Rufus                  1087 

13 

House  of  Stuart 

Henry  I                              hoc 

35 

James  I 

1603 

23 

Stephen                             ii3S 

19 

Charles  IJ 

1625 

24 

Commonwealth  declared 

House  of  Plantagenet 

May 

19.  1649 

ZO 

Henry  II                            iiS4 

35 

Oliver  Cromwell 

Richard  I                           1189 

10 

Lord  Protector  1653-1658 

John                                  I 199 

17 

Richard  Cromwell 

Henry  III                          1216 

56 

Lord  Protector  1658-1659 

Edward  I                           1272 

35 

Charles  II 

1659 

96 

Edward  II                         1307 

20 

James  II§ 

1685 

3 

Edward  III                        1327 

SO 

WiUiam  III  ' 

Richard  II*                       I377 

22 

and 
Mary  II 

► 

1689 

6 

House  of  Lancaster 

Anne 

1702 

za 

Henry  IV                            I399 

13 

House  of  Hanover 

Henry  V                            1413 

9 

Henry  Vlf                         1422 

39 

George  I 
George  II 

17 14 
1727 

13 
33 

House  of  York 

George  III 

1760 

S9 

Edward  IV                        1461 

22 

George  IV 

1820 

ZO 

Edward  V                          1483 

William  FV 

1830 

7 

Richard  III                       1483 

fl 

Victoria 

1837 

63 

House  of  Tudor 

House  of  Kent 

Henry  VII                         1485 

24 

Edward  VII 

190 1 

9 

Henry  VIII                       1S09 

38 

House  of  Windsor 

Edward  VI                        IS47 

6 

George  V 

1910 

•Deposed  1399 
tDeDOsed  ia6i 

tBeheaded  1649 
§Deposed  1688 

228] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[229 


^r 


II I 


I 

;1 


Authorities 

The  statements  contained  in  this  book  are  for  the  most 
part  based  upon  official  data,  chiefly  derived  from  the  fol- 
lowing publications: — 

Period         Revenue,  Expenditure,  Currency  and  Debt 

1688- 1 869  House  of  Commons  Sessional  Papers,  Vol,  XXXV,  i868'6q, 
No,  366.  This  monumental  work  of  H.  W.  Chisholm  gives 
complete  data  in  regard  to  revenue  and  expenditure  and 
the  debt. 


1870-1919 

1919  and 
1920 


Finance  Accounts,     See  page  161. 

Budget  Speeches  as  printed  in  various  publications;  also 
semi-official  data  tabulated  in  The  Economist  and  The 
Statist. 


19 14- 19 19  Committee  on  Currency  and  Foreign  Exchanges  After  the  War 
— Lord  CunliflFe,  Chairman.  First  Interim  Report — C.  9182, 
1918.     Final  Report — C.  464,  1919. 

The  Debt 
1 694- 1 786    History  of  the  Earlier  Years  of  the  Funded  Debt,    A.  T.  King. 
House  of  Commons  Sessional   Papers,    1898.     Vol.   52 — 
C.  9010. 

1 786- 1 890  Proceedings  of  the  Commissioners  for  the  Reduction  of  the 
National  Debt,  House  of  Commons  Sessional  Papers,  1801. 
Vol.  48— C.  6539. 

1836-1914  National  Debt,  House  of  Commons  Sessional  Papers,  1914. 
Vol.  50 — C.  7426.  Similar  statements  are  published  an- 
nually. 

Revenue,  Expenditure  and  Debt 
of  secondary  sources  the  most  valuable  have  been 


AsHTON,  John— ^  History  of  Eng- 
lish   Lotteries,   London,     1893. 

The  best  authority. 

Atton,  Henry  and  Henry  Hurst 
Holland — The  King's  Customs, 
New  York,  1908. 
Covers  from  earliest  times  to  1800. 

Bogart,  Ernest  L. — Direct  and 


Indirect  Costs  of  the  Great  World 
War, 

Carnegie  Endowment  for  International 
Peace.    New  York,  19 19 

Brisco,  Norris  a. —  The  Eco- 
nomic Policy  of  Robert  Walpole, 
New  York,  1907. 

A  finished  study;  the  best  for   the 
period. 


Dowell,  Stephen — A  History  of 
Taxation  and  Taxes  in  England, 
from  the  earliest  times  to  the 
present  day,    London,  1884. 

The  authoritative  work  on  the  subject. 

Freeman,  Edward  A. — The 
Growth  of  the  English  Constitu- 
tion from  the  Earliest  Times, 
London,  1906. 

GiFFEN,  Robert — The  Growth  of 
Capital,   London,  1889. 
An  excellent  study  of  national  wealth. 

Hall,  Herbert — The  Antiquities 
and  Curiosities  of  the  Exchequer. 
London,  1891. 
Supplements  Madox.  See  below. 
A  History  of  the  Custom  Rev- 
enue in  England  to  1827,  2  Vols. 
London,  1885. 

Mr.  Hall  is  one  of  the  most  thorough 
students  of  early  fiscal  methods.  His 
history  of  the  Customs  is  the  best 
authority. 

Hamilton,  Robert — An  Inquiry 

Concerning    .    .    .    the  National 

Debt.   Edinburgh,  181 8. 

A  scientific  study.  Hamilton  deserves 
the  credit  for  convincingly  demonstrat- 
ing the  fallacy  of  Pitt's  sinking  fund. 
A  concise,  authoritative  exposition  of 
the  subject. 

HiGGS,    Henry.     The    Financial 

System  of  the  United  Kingdom, 

London,  19 14. 

"A  summary  exposition  of  our  financial 
system,  its  organization,  methods,  and 
forms  of  procedure." 

Hughes,  A., 

Crump,  C.  G.,  and 

Johnson,  C.  **De  Necessaries  Ob- 
servantiis  Scaccarii  Dialogus,*^ 
commonly  called  Dialogus  de 
Scaccario,  by  Richard,  Son  of 
Nigel,  Treasurer  of  England  and 
Bishop  of  London,  Oxford,  1902. 

Supplements  Madox.    A  recent  and 
very  thorough  study. 


Lowell,  A.  Lawrence — The  Gov- 
ernment of  England.  2  Vols.  New 
York,  1912. 

The  best  authority  on  English  govern- 
mental methods. 

Madox,  Thomas— r^^  Ancient 
Dialogue  Concerning  the  Ex- 
chequer. London,  1758' 

The  best  authority  on  the  earliest  his- 
tory of  English  public  finance. 

Poole,    Reginald   L. — The   Ex- 
chequer   in    the    12th    Century, 
Oxford,  1912. 
Supplements  Madox. 

Ramsay,  Sir  James  H.  of  Bampf. 

The  historical  works  of  this  author 
cover  the  period  of  English  history 
from  B.  C.  55  to  A.  D.  1485.  He  gives 
particular  attention  to  matters  of 
finance,  and  is  perhaps  the  best  author- 
ity on  public  finance  from  1154.  when 
the  first  records  become  available,  to 
1485.  He  is  reputed  to  be  very  accu- 
rate. 

Scott,  W.  R. — The  Constitution 
and  Finance  of  English,  Scottish 
and  Irish  Joint-Stock  Companies 
to  1720,  3  Vols.  Cambridge, 
1910-1912. 

An  extremely  valuable  study.  Vol. 
Ill  contains  data  in  re  Crown  finance 
in  the  time  of  Queen  Elizabeth,  not  to 
be  found  elsewhere. 

ScROGGS,    W.     O.  —  English     Fi- 
nances under  the  Long  Parliament. 
Quarterly  Journal  of  Economics. 
May,  1907. 
An  important  study. 

SiLBERLiNG,  NoRMAN  J. — British 

Financial  Experience,  17 go- 1830. 

In    The    (Harvard)    Review   of 

Economic     Statistics,    October, 

1919. 

An  excellent  study  of  commodity  prices, 
wages,  prices  of  gold  and  silver,  ex- 
change, and  interest  rates. 


1 


' ,' 


il 


(i, 


230] 


BANKERS  TRUST  COMPANY 


Sinclair,  Sir  John — The  History 
of  the  Public  Revenue  of  the  Brit- 
ish Empire,  3  Vols.  London, 
1803-04. 

The  authority  on  the  history  of  Crown 
and  national  finance  to  about  1801. 
Treats  also  of  early  borrowing  methods. 

Stamps,    J.    C. — British   Incomes 
and  Property.   London,  1916. 
The  Wealth  and  Income  of  the 
Chief   Powers.    Journal    Royal 
Stat.  Soc.  July,  1919. 

Probably  the  most  scientific  and  au- 
thoritative studies  which  have  been 
made  on  these  subjects. 

Stubbs,  William — The  Constitu- 
tional History  of  England  in  its 
Origin  and  Development  (1066- 
1485)-   3  Vols.    Oxford,  1880. 

The  standard  work  on  the  English 
Constitution.   Invaluable. 

Williams,  W.  M.  ].—The  King's 
Revenue.     London,  1908. 

An  excellent  guide  to  a  correct  under- 
standing of  Treasury  and  budget  state 
ments. 

WiLLOUGHBY,  Wm.  F.,  and  Westel  , 
W.;  McCuNE,  Samuel  Lindsay. 
The  System  of  Financial  Admin- 
istration of  Great  Britain.  New 
York,  191 7. 

Describes  particularly  the  English  bud- 
get system. 

Banking 

Andreades,  a. — History  of  the 
Bank  of  England.  London,  1909. 
The  acknowledged  best  authority. 

Bagehot,      Walter  —  Lombard 
Street.   New  York,  1912. 
For  administrative  methods. 

BisscHOP,  W.  R.—The  Rise  of  the 
London  Money  Market^  Lon- 
don, 1910. 


Of  especial  value  in  connection  with  the 
genesis  and  history  of  the  private  and 
joint-stock  banks. 

Francis,  Joseph  Hume — History 
of  the  Bank  of  England.  Chicago, 
1888. 
For   human   interest    notes. 

HoLDEN,  Sir  Edward  H. — ^Annual 

addresses  to  Shareholders  of  the 

London  Joint  City  &  Midland 

Bank. 

These  very  able  addresses  were  deliv- 
ered at  the  annual  meetings,  19 15  to 
19 19  inclusive. 

Palgrave,  R.  H.  Inglis. — Bank 
Rate  and  the  Money  Market^ 
New  York,  1903. 

An  invaluable  study  of  the  banking  re- 
serves and  discount  rates  from  1845. 

Philippovich,  Eugen  von — His- 
tory of  the  Bank  of  England. 
Washington,  191 1. 

For  relations  to  the  Exchequer. 
Authoritative. 

Powell,  Ellis  T. — The  Evolution 
of  the  Money  Market.  London, 
1916. 

A  study  of  finance  as  a  central  co- 
ordinated force. 

Rogers,  James  E. — The  First 
Nine  Years  of  the  Bank  of  Eng- 
land.  London. 

The  standard  authority  for  the  period 
covered. 

Withers,  Hartley — The  English 

Banking  System.    Washington, 

1911. 

A  concise  review  prepared  for  the  Na- 
tional Monetary  Commission. 

War  and  Lombard  Street.  Lon- 
don, 19 1 7. 

For  emergency  measures  adopted  at 
outbreak  of  war. 


The  Economist,  The  Statist,  and  The  Bankers'  Magazine,  London,  have 
been  of  the  greatest  value,  particularly  for  the  war  period. 


Index  and  Glossary 


Where  no  page  number  is  given  the  subject  is  not  treated  in  the  text. 


Acceptances,  Use  of,  8;  How  mar- 
ket was  protected  in  1914,  8 
Accounting  Officers  of  Exchequer, 

160 

Aid,  66 — See  Scutage,  taxation 

Aids,  Feudal,  61 

Alfred,  King,  57 

Allies  and  Dominions,  Loans  to 

March  31,  1920,  Table,  34 
American  Securities,  Mobilization 

of,  1914-1919,  24 
American  War — See  War 
Amsterdam,  Bank  of,  established 

1609,  92,  177 
Anglo-French  Loan,  24;  See  also 

Debt  Table,  214 
Anglo-Saxon  King?,  Finances,  57- 

59 
Anne,  Queen,  103 

Annuities,  loi 

Antiqua  Custuma,  i.e.,  The  an- 
cient and  equitable  duties,  65 

Assessments,  Monthly,  67 

Assets — National,  21 

Assize  of  Arms — A  medieval  term. 
Under  the  assize  every  freeman 
was  required  to  provide  himself 
with  arms  and  armor  according 
to  his  means  and  rank  and  to 
stand  ready  for  military  service. 

Australia— Cost    of    War,    1914- 

1919,  I 
Auxilia — A  medieval  tax  on  ten- 


ants 


B 


Banco  del  Giro,  176 

Banco  della  Piazza  del  Rialto,  176 

Bank  Charter  Act  of   1844— 5ee 

Bank  of  England,  195 
Bank  of  Amsterdam,  177 
Bank  of  England: — Advances  to 


Government  on  Credit  of  Ways 
and  Means,  42;  Bank  Act  of 
1844,  terms  of,   195.    I97i   sus- 
pension of  in  1847,  1857,  1866 
and    1914,    198;    Bank   Rate — 
Effect  of  in  regulating  money 
rates  and  the  exchanges,   171, 
normally  controls  money  rnar- 
ket,  171;  Branches,  194;  Build- 
ing, 204;  Bullion  Report  1810, 
189;     Capital  —  original,     181; 
Charter  granted  July  24,  1694, 
87;  Charter  Act  of  1844,  194; 
Clerical  machinery,  203;  "The 
Court,"  203;  Committees,  203; 
Crises,  i8th  Century,  and  the 
Bank,    1 83 ;    Directors  —  How 
elected,    200,    personnel,     200, 
cannot  be  professional  bankers, 
201,  committees  of,  203,  court 
of,    203;    Early    History,    180; 
Exchequer — relation    to,     158; 
First  bank  in  modem  sense,  169; 
Fund  of  Credit  idea,  102,  181; 
French  War,  Great,  and  the  bank, 
185;  Functions — acts  as  banker 
to  nation,  158,  170,  182,  carries, 
reserves  of   other  banks,    170, 
conducts  general  banking  busi- 
ness, 169,  issues  bank  notes,  169, 
mobilizes    national    credit    re- 
sources,  171;   Fund  of  Credit, 
102,  181;  Government  of,  200, 
committees,   201,   clerical    ma- 
chinery, 203,  directorate,   200; 
Governor  and  Deputy  Govern- 
or— How  selected,  200,  change 
every  two    years,  202,  duties, 
202 ;  Loan  from  Bank  of  France 
in  1839,  196;  Note  issue — rights 
in  England  practically  exclusive, 
169;  Notes  made  legal  tender  in 
i833»  194;  Officers,  202;  Origin, 

1 231 


I' 


232] 


BANKERS  TRUST  COMPANY 


ENGLISH  PUBLIC  FINANCE 


[233 


180;  Privately  owned,  181; 
Privileges  and  obligations  under 
Act  of  1844,  197;  Quotations 
for  stock,  218;  Reserves — 
ultimate  banking  r.  of  nation 
held,  170;  Reserves — rule  in  re 
prior  to  1844,  195;  Reserves  in 
1S39,  196;  Rest  (reserve)  estab- 
lished 1722, 194;  Restriction  Act, 
1 87 ;  Resumes  specie  payments  in 
1821,  190;  Rule  for  Conduct  of 
business  prior  to  1844,  195; 
Statements  required,  194,  com- 
ment of  the  Economist  thereon, 
195;  Stockholders  liability, 
194;  Specie  payments  suspended 
1797 -1 82 1,  186,  effect  on  ex- 
changes and  prices,  188 

Bank  of  France: — Founded  in 
1800,  196;  Loan  to  Bank  of 
England  in  1839,  196 

Bank  of  Genoa  or  Compania 
(Casa)  di  San  Giorgio,  Origin 
dates  from  1148,  177 

Bank  of  Ireland,  158 

Bank  of  Venice  or  Banco  del  Giro, 
Founded  1619,  176 

Banks,  Country — failures  in  1793, 

124,  184 
Banks,  Irish,  170,  206 

Bankers — Italian,  and  Plantagenet 
Kings,  173 

Banking — Italian  corporate  banks 
— early,  176 

Banks,  Joint-stock — Introduced  in 
1826,  88,  192;  Privilege  extend- 
ed to  London  1833,  88.  English 
forbidden  to  issue  notes,  191, 
192,  197;  Number  of  banks  still 
having  privileges  in  1919,  192; 
Number  and  resources  in  Dec, 
1919,    193 

Bank  credits — How  created,  43; 
How  they  helped  to  finance  war 
1914-1920,  39;  Reserves  vs. 
Credits,  40 

Bank  Reserves— V5.  Credits,  1914- 


1920,  40;  Ultimate  carried  in 
Bank  of  England,  170;  Scotch, 
170,  206 

Bank  Statements — not  required 
in  England  except  by  Bank 
of  England,  194 

Banks  or  Partnerships  of  more 
than  6  persons  forbidden  in  171 1 
to  issue  notes  in  England,  191; 
In  1826  restrictions  removed 
(until  1844)  on  banks  located 
65  miles  from  London,  192 

Benevolences,  70 

Bona  Vacantia,  62 

Boer  War,  36 

Borrowing — See  Debt 

Brig-bote,  57 

British  Empire,  Cost  of  War  to, 
1914-1919,  I 

Budget,  154 

From  the  French  hougette,  a  little 
bag  in  which  the  Chancellor  of 
the  Exchequer  kept  his  papers. 
Adopted  in  England  in  1763 
when  the  annual  statement  of 
the  plan  of  supplies  and  means 
was  first  called  "opening  the 
Budget." 

Budget  (1920-1921),  18 

Bullion  Report,  189 

Burg-bote,  57 

C 

Canada — Cost  of  War  to,  (1914- 

1919),  I 

Capital  Levy  urged  in  1715,   116 

Chamberlain,  Austen,  18,  19,  20, 
22,  27,  35 

Chancellor  of  the  Exchequer — 
Ancient  times,  150;  Modern 
times,  154,  156.  See  Chamber- 
lain, Austen;  Gladstone,  William ; 
North,  Lord;  Pitt,William;  Wal- 
pole,  Robert 

Charles  I — Government  without 
Parliament,  81 

Charles  II,  78,  81,  82;  Army  dis- 
banded, 83;  Clergy .V  consent  to 
be  taxed    by   Parliament    and 


obtain  right  to  vote  at  elections, 
84;  Dutch  wars,  84;  Excise 
Taxes,  84;  Fire  of  London,  84; 
French  loan  makes  him  inde- 
pendent of  Parliament,  85; 
Seizes  deposits  of  Goldsmiths, 
75;  Parliament  ends  Dutch  war 
by  withholding  supplies,  85; 
Plague,  84;  Poll  tax — greatest 
known — classes  affected,  83 ;  Stop 
of  Exchequer,  75,  85,  179;  Rev- 
enue—  loths  and  I5ths  aban- 
doned for  monthly  assessments, 
84;  Permanent  revenue  given  in 
lieu  of  prerogative  rights,  84 

Charters:  Magna — extorted  from 
King  John  in  12 15.  The  great 
charter  of  the  liberties  of  Eng- 
land, 54,  66,  77;  See  Taxation: 
Aids,  Customs,  Escheats,  Scut- 
age,  Purveyance.  Mercatoria — 
published  in  1303.  The  Magna 
Charta  of  Commerce.  The  basis 
of  the  free  trade  system,  77 

Chisholm,  H.  W.,  Monumental  re- 
ports on  debt  and  revenue,  131, 
228 

Church,  The,  Revenues  derived 
from,  69;  Spoliation  of  bv  Henry 
VIII,  70 

Circulation,  Bank  Note:  English, 
191,  192;  Bank  of  England,  195- 
199;  Joint-stock  banks,  192; 
Private  banks,  192;  Irish  banks, 
206;  Scotch  banks,  206 

Civil  Government,  Cost  of,  1833- 
1920,  143,  144,  145  . 

Civil  Rights,  Revenues  and  civil 
rights,  histories  bound  together, 

54 
Civil  War  Period,  1 649-1 660,  81 

Clergy:  Supplies  voted  from  own 

estate  until  time  Charles  II,  84; 

Obtain  right  to  vote  at  elections, 

84 
Coinage:  Debasement   as  source 
of  revenue,  63,  70;  Debased  by 
Edward  I,  Edward  IV,  Henry 


VIII,  70,  71;  Irish — debased  by 
Elizabeth,  71 ;  Restored  by  Eliz- 
abeth, 70;  Restored  by  William 

111,71 
Commerce,  Foreign,  Anglo-Saxon, 

Commons:  First  admitted  to 
share  in  taxing  power  (1295),  77; 
Certain  revenues  voted  yearly 
to  insure  control  of  government, 
136;  Right  to  initiate  money 
legislation  becomes  a  precedent 
in  reign  of  Henry  IV,  79;  Wil- 
liam III  and,  136 

Commonwealth  and  Protectorate 
( 1 649-1 659):  A  period  of  active 
training  for  self-rule,  81;  Cost 
of  government  high,  82 

Compania  di  San  Giorgio,  177 

Compera  del  Capitalo,  177 

*' Consols,"  122,  2X1 

Constitutional  Government:  De- 
veloped by  control  of  purse  un- 
der Plantagenets,  77;  Lancaster 
and  York,  78;  Tudors,  79; 
Stuarts  (earlier),  79;  Common- 
wealth and  Protectorate,  81; 
Stuarts  (later),  82;  William  III, 

55 
Continental    Policy,    Napoleon's, 

Stimulated  home  trade  of  Eng- 
land, 187 

Contributions — See  Revenue 

Corn  Laws  repealed,  89 

Cotton  Trade,  How  financed, 
1914,  II 

Credit,  Letter  of,  reign  of  John, 

174 

Credit,  National,  High  sense  of 
national  honor  at  base  of  na- 
tional credit,  135 

Credits,  Loans  to  Dominions  and 
Allies,  March  31,  1920 — ^Table, 

35 
Credit  Structure:  In  War,  1914- 

1920,  45 
Cromwell,  81 


I 


Uj     L  I 

i 


i    I 


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II 


t 


i* 


i 


234] 


BANKERS  TRUST  COMPANY 


Crown  Colonies,  Cost  of  war  to, 

1914-1919,  I 
Crown  Finance,  1066-1688,  54 
Crown  Lands,  69 
Crown  Jewels  Pawned  for  Debt, 

72 

Crusades  and  Italian  bankers,  173 

Cunliffe,  Lord,  Committee  on  Cur- 
rency and  Foreign  Exchanges,42 

Currency  and  Foreign  Exchanges 
after  War,  Committee  on,  42 

Currency:  Joint-Stock  Banks  de- 
prived of  right  to  issue  notes  in 
1844,  197;  Note  and  Deposit — 
actual  and  per  capita,  191 3- 
1919,  Table  II,  48;  Note  and  de- 
posit vs.  Gold  reserves,  Table 
III,  50 

Currency  Notes — See  Treasury 
Notes 

Customs,  64;  Anglo-Saxon,  59; 
Antiqua-Custuma,  65;  Farming, 
172;  Free  Trade — absolute  since 
1866,  89;  Charta  Mercatoria,  77; 
Informal,  66;  Magna  Charta, 
defined,  65;  New  Customs  (Nova 
Custuma),  65;  Old  (Antiqua- 
Custuma),  65;  Oldest  branch  of 
revenue,  65;  Origin,  59,  64; 
Prisage — two  casks  of  wine  from 
each  cargo,  65;  Protective  Tar- 
iffs, 66;  Subsidies,  65;  Tariffs  to 
promote  and  regulate  commerce, 
66;  Tariff  reform,  141;  Tunnage 
and  Poundage,  65 

D 

Dane-geld,  58 

Debt,  Crown:  Compulsive  loans, 
74;  Crown  jewels  pawned  for 
debt,  72;  First  recorded,  72; 
Foreign  borrowing,  75;  Interest 
payments  (usury)  interdict  in 
medieval  times,  72;  Henry  VIII 
repudiates,  73;  Security  given 
— ^form  of,  73;  Stop  of  Exchequer 

75 


Debt,  National:  Ability  to  carry 
due  to  progress  of  the  arts  and 
sciences,  etc.,  during  i8th  and 
19th  Centuries,  38,  133,  149; 
American  War  (1775- 1783),  1.091 
Amount  at  close  of  historical 
periods,  1688-18 17,  93;  181 7- 
I9I9»  37 J  Annuities,  loi,  ton- 
tine, 102;  vs.  Bank  Assets,  45; 
Began  in  1688,  86,  91,  94;  Bur- 
den, Comparative,  1688-18 17, 
132,  134;  1688-1920,  18,  166; 
1817-1914,  148;  1817-1919,  36, 
37;  Cause,  chiefly  war,  89,  91, 
128,  137,  163,  166;  Charge  vs. 
National  Income,  37,  134,  148; 
Competitive  bidding  for  loans, 
inaugurated  by  Pitt,  123;  "Con- 
sols," origin,  1749,  122,  211; 
Consols,  quotations,  1697- 1920, 
218-221;  Credits  to  March  31, 
1920,  35;  Debenture — copy  of 
one  in  reign  of  John,  173;  East 
India  Co.,  103;  Exchequer  Bills, 
87>  98,  99;  Exchequer  bonds, 
213;  Exchequer  order  and 
tallies,  96;  Floating  debt — 178^, 
122;  1920, 31,  33;  Foreign  securi- 
ties mobilization,  1915,  24; 
French  War  Debt,  124-135; 
"Funded''  and  "unfunded'* 
debt  defined,  94;  Funded,  early 
forms,  loi;  Fund  of  Credit, 
102;  Loans  to  Dominions  and 
Allies,  March  31,  1920 — ^Table, 
34,  35;  Lottery  Loans,  108;  Lot- 
teries, State,  113;  Loyalty  Loan 
of  1796,  126;  Maturities  of  debt 
on  Dec.  31,  1919,  30;  Navy  sup- 
ply bills — manner  of  issue  time 
Charles  II  to  1784,  122,  123, 
discount  in  market,  1687,  98, 
method  of  issue  reformed  by 
Pitt,  122,  funded  by  Pitt  in 
1785  and  1786,  123;  Origin,  86; 
Paying  for  the  War  bonds,  41; 
Reduction,  Proposed  1920-192 1, 
31,  32;  Refunding  and  reduction 


ENGLISH  PUBLIC  FINANCE 


[23s 


of  interest,  1749,  121, 1784,  122, 
1817-1914,  146,  1920-1921,  32, 
33;  Sinking  fund:  Walpole*s, 
1717,  116,  after  1727  inopera- 
tive for  debt  reduction,  117; 
Sinking  Fund,  Pitt's,  1 786-1 829, 
117,  fallacy  of,  118;  Sinking 
Funds,  Modern,  119,  216,  old, 
216,  new,  216,  war  debt,  1914- 
1920  (known  as  depreciation 
fund  for  4%  and  5%  War 
Loans;  sinking  fund  for  Victory 
and  Funding  Loans),  21,  31, 
216,  217;  South  Sea  Company, 
20;  Status,  Dec.  31,  19 19,  20, 
March  31,  1920,  complete  des- 
criptive tables,  208-217;  Spanish 
and  Austrian  Wars  debt  (1739- 
1748),  91,  93;  Terms  on  which 
loans  were  placed,  American 
War,  109-113,  Great  French 
War,  125,  126,  131,  Great  World 
War,  1914-1920,  23-29,  41,  212- 
215;  Transfer  regulations,  215; 
Treasury  Bills,  9,  14,  33,  87, 
214;  Treasury  Bonds,  33;  Un- 
funded debt  defined,  94,  early 
forms  of,  96  —  army  and  navy 
supply  bills,  98 ,  exchequer  bills, 
98-100,  exchequer  bonds,  213, 
exchequer  order,  97,  tallies, 
96,  treasury  bills,  9,  14,  214, 
ways  and  means  advances,  42, 
212;  War  Debt,  1914-1920,  23; 
War  Savings  Associations,  19 14- 
1920,  25;  vs.  Wealth,  1688-1817, 
93;i8i7-i9i4,  148 

Demesne^*  —  Domain,     57,     61. 
See  Prerogative 

Discount  Rates — Money,  1898- 
1914,  4;  1914-1919,  226 

Dominions  and  Allies — Loans  to, 
March  31,  1920,  2,  21 ;  Table,  35 

Dominions:  Expenditures  for  War, 
1914-1919,  I,  2;  Per  cent,  met 
by  taxation,  3 


(< 


East  India  Company,  103 
Edward  the  Confessor,  57 
Edward  I:  Coinage  Debased,  70; 
Commons  admitted  to  share  in 
taxing  powers  in  1295,  77;  Laws 
codified  by,  77;  Tunnage  and 
Poundage  originate  in  reign  of, 

65 
Edward  III:     Default  on  obliga- 
tions to  Italian  bankers,    175; 
Necessity  for  revenue  gives  Par- 
liament opportunity  to  obtain 
concessions     in     exchange     for 
grants,  78;  Poll  tax  first  laid  in 
13375   Tenths    and     Fifteenths 
originated  in  his  reign,  67 
Edward  IV,  Coinage  debased,  70 
Edward  VI,  Foreign  loans,  75,  79, 

175 
Elizabeth,  Queen,  Foreign  loans, 
75,  175;  Lottery,  108;  Coinage 
restored,  70;  Sanctions  base 
coinage  for  Ireland,  71;  Debts 
— father,  brother  and  sister  paid. 

Estate  duties,  69 

Exchequer  (The  public  Treasury) 
— Ancient  Accounting  system 
of,  150;  Anglo-Saxon,  60;  Bud- 
get, 1 54;  Chancellor  of,  156;  Con- 
solidated fund,  157;  Depart- 
ments and  officials,  156;  Emer- 
gency measures,  19 14,  6;  Ex- 
penditures, 1688-18 17, 136,  138; 
1 688-1920,  166;  and  Bank  of 
England,  181;  Modern,  155; 
Norman  period,  54, 60;  Receipts, 
1688-1830,  136,  140; 1688-1920, 
164;  Tallies,  152;  Treasury,  153; 
and  Bank  of  England,  158 

Exchequer  Bills:  First  issued 
1696,  87,  98;  Reign  of  William 
III,  100,  185;  Largely  super- 
seded by  Exchequer  bonds 
(1853),  213;  and  Treasury  bills 
(1871),  14,  214 


' 


I 


t 

V 


236] 


BANKERS  TRUST  COMPANY 


Exchequer  Bonds,  213 
Exchequer  Order  and  Tallies,  96, 97 
Exchequer,  Stop  of,  75,  85 
Excess  Profits  Tax — See  Taxation 
Excise    Taxes:     Introduced  from 
Holland  in  1643,  67;  of  Charles 
II,  84;  French  war  period,  139 
Expenditure,  2j4  centuries  vs.  six 
years,  17;  Character  of,  1817- 
1914, 142;  Civil — increase  after 
each   war,    138;  Civil   Govern- 
ment,  1817-1914,    143;   Distri- 
bution, 1833-1914,  Table,  145; 
Debt  charge,  increasing  burden 
after    each    war,     137;     Debt 
charge,    1817-1914,    142;  Mili- 
tary steadily  rises,  137, 142, 144; 
Principal  objects  of,  1 688-1 920, 
166;  War  chief  cause,  89;  1688- 
1830   for  alternate   periods  of 
peace  and  war,  138;  1688- 1920, 
18,    166;  Military — 1816-1914, 
142;  1915-1920 — ^Table,  17 
Exchanges,  Foreign,  Working  of, 

described,  8 
Export  Merchants,  Advances  to, 

in  1914,  10 
Extortions — Forms    of,    practised 
by  early  kings,  69 


Factor,  The  King's,  175 

Fairs,  Anglo-Saxon  and  Norman, 

59 

Farm  (or  Ferme),  Farmmg  cus- 
toms, how  done  and  why,  172 

Federal  Reserve  Banks — U.  S. 
carry  ultimate  specie  reserves 
of  all  banks,  40 

Ferme — See  Farm 

Feudal  system:  Aids,  61;  Anglo- 
Saxon,  57;  Knights  service,  62; 
Norman  system  of  land  tenure, 
61 

"Finance  Accounts,"  68,  161 

Finance,  National:  Dutch  ex- 
perience  a   valuable   asset    to 


William    III,    92;     Germs    of 
modern  financing  methods  found 
in  early  practice,  68 
Financial  conditions  in  July,  191 4, 

4 
Fines,  62,  Extortionate,  70 

Fiscal  system  today:  Accounting 
officers,  160;  Bank  of  England, 
158;  Bank  of  Ireland,  158;  Bud- 
get, 154;  Exchequer,  155;  Chan- 
cellor and  Aids,  156;  Consoli- 
dated Fund,  157;  Financial  Re- 
ports, 161;  Paymaster-General, 

159 
Flemish     merchants.     Loans     to 

Edward  VI,  Mary  and  Eliza- 
beth, 75,  175 

Folk-land,  59 

Foreign  investments,  5 

Foreign  securities.  Mobilization  of, 

24 
Forests,  The  King  s,  61 

Forest  laws,  61 

Free  Trade — See  Customs,  77,  89 

Fumage.    See  Taxation,  68 

Fund  of  credit,  102,  181 


Genoa,  Bank  of  (Ufficio  di  San 
Giorgio),  Cartulary  notes — 
Character  of  business,  177 

George,  David  Lloyd,  5 

"Giro  payments'*  defined,  176 

Giro,  Banco  del  (Bank  of  Venice), 
176 

Goldsmiths,  The,  178,  182 

Grants.     See  Aid. 

Great  Britain — See  United  King- 
dom 

Gresham,  Sir  Thomas,  King's  fac- 
tor, 175 


H 


"Hearth-money^"  66 
Hereditary  revenues.    See  Prerog- 
ative, 61 


ENGLISH  PUBLIC  FINANCE 


[237 


Henry  H:  Exchequer  records 
date  from  his  reign,  54 

Henry  III :  The  first  king  of  Eng- 
land whose  debts  are  recorded, 
72 

Henry  IV,  79 

Henry  V,  73 

Henry  VHI,  70,  73,  74,  79 

"Here-geld,"  57 

Hide — of  Land:  A  medieval  meas- 
ure of  land — ^about  100  acres,  58 

Holden,  Sir  Edward  H,  11;  proc- 
ess of  payment  for  government 
loans  described,  41 

Hearth  tax,  58 

"Heavy  horse,"  113 

House  duty,  68 

I 

Income,  National:  Defined,  last  H, 
147;  1688-1817,  132,  134;  vs. 
Debt  Charge,  134;  1817-1914, 
148;  1920,  3. 

Invisible  trade  balance,  5 

Income  tax — See  taxation.  First 
modern,  1799,  88,  142 

India,  Cost  of  war  to,  1914-1919, 
I,  21 

Inflation,  High  prices  and  bank 
credits,  49;  By  bank  deposit 
credit,  1914-1920,  13;  Methods 
of — used  to  finance  war  19 14- 
1920,  13;  One  measure  of,  52; 
By  notes,  bank  and  treasury,  13, 
47;  Prices  vs.  Physical  volume 
of  trade,  49 

Interest:  Charge  for,  forbidden  in 
medieval  times,  72;  Payment 
forbidden  by  Church,  72;  Pay- 
ments in  lieu  of,  72,  76,  172 

"Issue" — English  Treasury  term 
for  "payment" 

Italian  Banks,  Early  corporate, 
176 

J 

James  I,  Financial  methods  re- 
viewed, 80,  81 


James  II,  85 

Jews,  Taxation  of,  66 

John:    Debenture  of,  173;  Letter 

of  Credit  of,  174 
John,  Magna  Charta  (1215),  54. 77 
Joint-Stock    Banks— 5e^    Banks, 

Joint  Stock 

K 

Kemmerer,  E.  W.,  Physical  vol- 
ume of  trade,  1913-1919,  49 
Kindersley,  Sir  Robert,  27,  28 
King:  Demesne,  57;  Factor,  i75;vs. 
People,  54,  55;  Prerogative,  61 
Knights  Service,  62 


Labor,  Labor  Party,  Importance 

of  correct  attitude,  90 
Lancaster  and  York,  Period  of,  78 
Lands:       Crown — See    Demesne; 

Taxation  of — See  Taxation 
Letter  of  Credit— A.D.  1201,  174, 

originated  in  Italy,  172 
License  fees — See  Taxation 
"Light  Horse,"  113 
Lombards,  178 
Loans — See  Debt,  National 
London   Joint   City   &    Midland 

Bank,  31 
Long  Parliament  (1640-1653),  67; 

Post-Office  inaugurated  by,  68 
Lotteries — See  also  Debt,  National; 

First  in  England   (1569),    108; 

Last  (1826)  115;  Private  lotteries 

illegal  but  flourish,  114;    State 

lotteries,  113,  115 
Lottery    Loans,    109 — See    Debt, 

National 
Lottery  Tickets,  144 


M 

Magna  Charta — See  Charters 
Mary,  Queen,  75 

Merchants,  Anglo-Saxon  times,  59 
Million  Bank,  103 


238] 


BANKERS  TRUST  COMPANY 


Mobilization  of  Foreign  Securities, 

24 
Monopolies,  70 

* '  Monthly  Assessments '  * — intro- 
duced by  Long  Parliament,  67; 
See  Taxation 

Moratorium  (1914),  7,  11,  12 

N 

Napoleon,  Continental  Policy — 
Result  to  England,  187 

National  Debt— 5^^  Debt,  Na- 
tional 

Navy  Bills,  98,  122— See  Debt, 
National 

Newfoundland,  Cost  of  War,  1914- 
1919,  I 

New  Zealand,  Cost  of  War,  i 

Nicholson,  Prof.  J.  Shield,  45 

Norman  Period,  57 

North,  Lord,  Financial  Methods 
in  American  War,  1 1 1 

Northcote,  Sir  Stafford  H.,  148 

'*Nova  Custuma,"  i.e.,  New  Cus- 
toms— See  Customs,  65 


O 


"Omnium,"  112 


Paterson,  William,  Proposes  or- 
ganization of  Bank  of  England, 
180 

Paym.aster  General,  159 

Peel,  Sir  Robert,  Brings  about  sep- 
aration of  Banking  and  Issue 
departments  of  Bank  of  Eng- 
land, 196 

"People,"  Definition  of  term  as 
used  herein,  54 

People  vs.  King,  54 

Peruzzi,  Italian  bankers,  ruined  by 
Edward  III,  175 

Personal  Property,  Taxation, 
dates  from  reign  of  Edward  III, 
67 — See  Taxation 

Pipe  Rolls  ("Rolls  of  account"  in 
text),  54 


Pitt,  William,  The  younger:  Chan- 
cellor of  Exchequer,  1784,  122; 
Competitive  bidding  for  loans 
and  army  supplies  inaugurated 
by,  123;  Income  tax,  modern, 
originated  by  in  1799,  88; 
Methods  used  in  financing 
French  War,  125,  127,  185; 
Navy  Bills  funded  by,  123;  Re- 
called in  1804,  128;  Death  of, 
1806,  128 

Plantagenets,  Development  of  Con- 
stitution under,  77 

Pole,  William  de  la,  175 

Poll-taxes,  66;  of  Charles  II,  83— 
See  Taxation 

Post-office,  Introduced  by  Long 
Parliament,  68 

Pre-emption  —  See  Prerogative, 
62 

Prerogative,  King's,  61;  Aids,  61; 
Benevolences,  63;  Bona  Va- 
cantia, 62;  Coinage,  63;  Con- 
tributions, 63;  Demesne,  57,  61; 
Estates,  unclaimed,  62;  Estrays, 
62;  Extortions,  63;  Feudal  Aids, 
61;  Fines,  62;  Fish,  large,  62; 
Forests,  61;  Forest  laws,  61; 
Idiots,  Custody  of,  62;  Loans, 
Compulsive,  63;  Monopolies,  70; 
Knight's  service  {See  also  Scut- 
age),  62;  Pre-emption,  62;  Pri- 
sage  of  wine  {See  New  Customs), 
65;  Purveyance,  Anglo-Saxon, 
58,  Norman  times,  62;  Queen's 
Gold,  63;  Treasure  trove,  62; 
Trinoda  Necessitas,  57;  Wrecks, 
62;  Surrendered  by  Charles  II, 
84 

Prices,  Index  Number,  1913-1919, 

51 
Prices  and  Bank  Credits,  49;  vs. 

Physical  Volume  of  Trade,  49 
Public  Debt— ^ee  Debt,  National 
Public  Expenditure — See  Expendi- 
ture 


ENGLISH  PUBLIC  FINANCE 


[239 


Purveyance:  Anglo-Saxon,  58; 
Norman  times  to  1688,  62;  See 
Prerogative 

Q 

Queen's  gold,  63 

Quotations:  Bank  of  England 
Stock,  1697-1919,218;  Consols, 
1697-1919,  218;  War  issues, 
1910-1919,  221 

R 

Ransom:  King  Richard's,  68.  See 
also  Feudal  Aids  under  Pre- 
rogative. 

Reserves:  Specie,  19 13-19 19 — 
Table,  50 

Restriction  Act,  187 

Revenue  —  National,  136;  Aver- 
age annual,  1 688-1 830,  140;  At 
historic  periods,  1 688-1 920,  164, 
See  Debt,  Prerogative,  Taxation 

Revolution  of  1688,  dividing  line 
between  old  and  new  England, 
55,  86 

Richard  I,  Income  tax  first  levied 
by,  68 

Richard  II,  75,  78 


"Scrip,"  113 

Scutage,  C'Escuage,"  derived  from 
"escu"  (French),  a  shield;  a 
sum  of  money  paid  in  lieu  of 
service  of  the  shield,  i.e.,  of 
knight's  service  (62)).  An  early 
form  of  land  tax,  66. 

Ship-geld,  58.     See  Taxation. 

Sinking  funds:  Walpole's,  116; 
Pitt's,  117;  Modern,  14,  21,  31, 
119,  216 

Social  betterment,  expenditure  for, 

144,  165 
South  Sea  Company,  history,  pur- 
pose and  scheme  of,  104 


Stamp  duties,  first  imposed  in 
1671,68.     5e^  Taxation. 

Stock  Exchange  loans,  how  pro- 
tected 1914,  10 

Stuart  and  Cromwellian  period, 
one  of  transition  from  autocracy 
to  democracy,  79 

Stuarts,  last  of  autocrats,  79 

Sudsidy:  Customs,  65;  A  form  of 
tax,  66.  See  Customs;  also 
Taxation 


Tally — (talea — a  slender  staff,  a 
rod,  stick,  stake,  bar),  152.  See 
Debt — national — unfunded,  96; 
"Tallies  of  assignment,"  96; 
"Tallies  of  loan,"  96;  Excheq- 
uer order,  96,  97 

Tariff — See  Customs,  89;  Reform 
of,  1842-1914,  89,  142 

Taxation:  Aid  (Scutage)  A  form 
of  land  tax,  66;  Aliens,  66;  An- 
glo-Saxon :  trinoda-necessitas  — 
brigbote,  heregeld  or  herefare, 
burg-bote;  also,  dane-geld,  fu- 
mage  (68)  or  hearth-tax,  horn- 
geld,  57,  58;  Assessed  taxes, 
1785,  67;  Brig-bote,  57;  Burg- 
bote,  57 ;  Cards,  tax  on,  first  intro- 
duced during  reign  of  Charles 
I;  Carucage — A  medieval  tax 
levied  on  land  at  so  much  a  caru- 
cate,  i.e.,  the  quantity  of  land 
that  could  be  ploughed  by  one 
plough  in  a  season;  Customs 
(i  154-1688),  64,  68;  Consoli- 
dated fund,  1787,  157;  "Dane- 
geld,"  58;  Estate  duties,  69; 
Excess  profits,  15,  19,  20,  69; 
Excise,  68;  Fumage,  68;  Fund, 
consolidated,  157;  Hearth- 
money,  58,66,68;  Here-geld,  57; 
House  duty,  68;  Income  tax — 
most  flexible,  15,  first  levied  by 
Richard  I,  68,  first  levied  in 
modern  form  by  Pitt  in  1799-, 
88,  discontinued  at  close  French 


«f 


m 


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240] 


BANKERS  TRUST  COMPANY 


Wars,  reintroduced,  in  1843, 
142;  Indirect,  unknown  until 
1643,  67;  Jews,  66;  Land  taxes, 
66,  68;  Land-value  duties,  69; 
Licenses,  59;  Laws  in  re  must 
originate  in  Commons;  Long 
Parliament  methods,  67;  Mar- 
riages, births  and  deaths; 
Methods  in  1817-1913,  141; 
Moneyage — A  form  of  hearth 
money  originating  in  Anglo- 
Saxon  times — "by  way  of  boun- 
ty or  recompense  to  the  King 
not  to  alter  or  debase  the  coin' 
abolished  by  Henry  I 
Monthly  assessments,  67;  Origin 
ot.  present-day  taxes,  68 
Personal  property,  66;  Poll 
taxes,  66,83;  Post-office,  20, 68 
Pre-emption,  62;  Property  and 
income,  68;  Scutage,  purpose 
for  which  it  could  be  levied,  66; 
Ship-geld,  58;  Stamp  duties 
first  imposed  in  1671,  68;  Sub- 
sidy —  customs,  65;  tax,  66; 
Tenths  and  Fifteenths,  67; 
Transfers  of  stocks,  20;  Trinoda 
necessitas,  57;  Of  war  wealth, 
19;  1914-1920,  principle  upon 
which  based,  14;  "Tenths  and 
Fifteenths,"  67 

Tonnage  Act — 1694,  Bank  of  Eng- 
land organized  under,  180 

Trade,  physical  volume  change, 
1913-1919,  49 

Treasurer — Norman  times,  54 

Treasury,  Public,  27,  54,  153,  155 

Treasury  Bills,  9, 14,  87,  214.  See 
Debt — national. 

Treasury  Notes,  also  called  Cur- 
rency Notes,  Bradbury's,  7; 
Outstanding,  Dec.  31,  1919,  30, 

47 
Trinoda  necessitas,  57 

Tudor  period,  control  of  the  crown 
lost  by  the  people,  79 


Tunnage  and  poundage,  65.    See 
Customs. 

U 

Ufficio  di  San  Giorgio,  177 

Union  of  South  Africa,  cost  of  war, 
1914-1919,  I 

United  Kingdom,  cost  of  war  to, 
1914-1919,  I 

Usury — See  Interest,  172 


Venice,  Bank  of.  Character  of 
business,  176 

"Vote'' — English  treasury  term 
for  appropriation,  162 

W 

Walpole,  Robert,  Chancellor  of 
Exchequer,  116 

War:  American  banks,  how  they 
helped  finance  world  war,  39; 
Boer  war,  37, 129;  Debts  caused 
by  war,  91;  Crimean  war,  129; 
Cost  cumulative,  138;  Compari- 
son, 1688  to  1817,93, 136;  Debts, 
23;  i688-i8i7,93;Expenditures, 
1914-1920, 15, 17;  Income,  1914- 
1920, 16;  Dutch,  84;  French,  the 
Great,  37,  financing  described, 
124-140;  Greatest  cause  of  pub- 
lic debt  and  expenditure,  89 

War  19 14-1920: — Summary,  1-3; 
Banks'  part  in  financing,  39; 
Six  years  of  war  vs,  2j^  cen- 
turies, i,  18;  Conditions  in  July, 
1 9 14,  4;  Emergency  measures, 
19 1 4,  6 — currency  notes,  7; 
clearing  house  certificates,  7; 
moratorium,  19 14,  [7;  protect- 
ing acceptance  market,  8; 
treasury  bills  issued,  9;  stock 
exchange  loans,  10;  advances 
to  exporters,  10;  cotton  trade 
financing,    11;  success  attend- 


ENGLISH  PUBLIC  FINANCE 


[241 


ing  these  efforts,  1 1 ;  Costs  and 
how  met,  13,  37»  per  cent  from 
tax,  2,  per  cent  from  borrow- 
ing, 2;  Credit  structure  and 
the  banks— Table  I,  National 
debt  vs,  bank  assets,  46;  II, 
currency  and  deposits,  48;  III, 
specie  reserves,  50;  War  Loans, 
how  financed,  41;  Loans  to 
Dominions  and  Allies,  March 
31,  1920— Table,  35 
Ways  and  means  advances:  War 
Debt,  1914-1920,  23,  42,  45 


«    • 


Wealth,  War,  taxation  of,  19 
Wealth,  National,  1914  and  1920, 
3;  1 688-1 8 1 7— ^ee    table,     93; 

1817-1914,  I47»  148; 

William  I,  79 

William  III,  coinage  restored,  71, 
75;  First  loans,  97;  Grant  for  life 
denied,  55;  Dutch  financial  ex- 
perience an  asset,  87;  Finance 
(public),  in  reign,  92;  Lottery 
loan,  108;  National  debt  and 
Bank  of  England  originate  in 
his  reign,  86,  87 


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COLUMBIA  UNIVERSITY  LIBRARY 

This  book  is  due  on  the  date  indicated  below,  or  at  the 
expiration  of  a  definite  period  after  the  date  of  borrowing, 
as  provided  by  the  rules  of  the  Library  or  by  special  ar- 
rangement with  the  Librarian  in  charge. 


DATE  CORROWED 


DATE  DUE 


DATE  BORROWED 


DATE  DUE 


D694.2 


Fisk,  Haxvey  E* 


F54 


I 


English  public  finance  from  the 
revolution  of  1688. 


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ft)  f K  06Nt 

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0044248075 


AUG    9  1940 


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